Estonia - Poverty and wealth



Under the Soviet regime, Estonia was arguably a land of economic equality and the most affluent republic of the Soviet Union. The vast majority of the population was state-employed, no private initiative was allowed, and government funds were allocated equitably (for free health care, higher education, pensions, and other benefits). The only exceptions to this modest standard of living were the nomenklatura (the Communist Party elite) and the informal economy players. Market reforms in the 1990s generated new poverty and wealth, however. Unemployment, hitherto unknown, increased, although not as dramatically as elsewhere in the region. Social benefits suffered from inflation in the early 1990s. The withdrawal of the Russian military from the territory

GDP per Capita (US$)
Country 1975 1980 1985 1990 1998
Estonia N/A 4,022 4,451 4,487 3,951
United States 19,364 21,529 23,200 25,363 29,683
Russia 2,555 3,654 3,463 3,668 2,138
Latvia 2,382 2,797 3,210 3,703 2,328
SOURCE: United Nations. Human Development Report 2000; Trends in human development and per capita income.

Distribution of Income or Consumption by Percentage Share: Estonia
Lowest 10% 2.2
Lowest 20% 6.2
Second 20% 12.0
Third 20% 17.0
Fourth 20% 23.1
Highest 20% 41.8
Highest 10% 26.2
Survey year: 1995
Note: This information refers to income shares by percentiles of the population and is ranked by per capita income.
SOURCE: 2000 World Development Indicators [CD-ROM].

and the breakup of collective farms deprived many Estonians of their livelihood.

At the same time, many entrepreneurs made fortunes and a new middle class started taking shape as privatization and free initiative changed economic rules. Estonia generally avoided the surge of corruption and crime that plagued other Eastern European countries. In 1995 its Gini index (measuring economic equality with 0 standing for perfect equality and 100 for perfect inequality) was 35.4—more equitable than the United States, but much less equitable than most Eastern European countries and Nordic countries. Although extreme poverty in Estonia was nowhere near the size in other Eastern European countries, 6.3 percent of its population lived below the poverty line in 1994. As a country with an aging population, Estonia is struggling to maintain its pension system, and the government is formulating a much-needed pension reform.

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