Former Estonian Leader Wins Friedman Prize For Liberty

by Ulrika Lomas, Tax-News.com, Brussels

28 April 2006

The Cato Institute, the free market think tank, has announced that the recipient of the 2006 Milton Friedman Prize for Advancing Liberty is Mart Laar, the former prime minister of Estonia whose bold economic reforms, which included the introduction of a flat tax, have been used as a blueprint for change across the former Eastern bloc.

The prize and its accompanying $500,000 cash award will be presented to Laar on May 18 at the Drake Hotel in Chicago. Named after Nobel laureate Milton Friedman, the prize is awarded every other year to an individual who has made a significant contribution to advancing human freedom.

Previous recipients of the award include the late British economist Peter Bauer (2002) and Peruvian economist Hernando de Soto (2004).

"I am very happy and proud to receive such an important prize," Laar commented after learning he was to be the third winner of the award.

"The Milton Friedman Prize is especially important to me as I am such an admirer of Milton Freidman's works and I am proud that we succeeded to prove in Estonia that Milton Friedman's ideas really work," he added.

The ex-Estonian Prime Minister, said he introduced a flat tax in 1992 because nobody had told him it was impossible. Now Estonia has been followed by Latvia, Serbia, Slovakia, Georgia, Russia, Ukraine and Poland.

An historian by trade, Laar governed Estonia from 1992 to 1995 and from 1999 to 2002. When he became Prime Minister in 1992 at the age of 32 he knew nothing about economics.

“It is very fortunate that I was not an economist,” he told the Brussels Journal last year.

“I had read only one book on economics – Milton Friedman’s “Free to Choose.” I was so ignorant at the time that I thought that what Friedman wrote about the benefits of privatisation, the flat tax and the abolition of all customs rights, was the result of economic reforms that had been put into practice in the West. It seemed common sense to me and, as I thought it had already been done everywhere, I simply introduced it in Estonia, despite warnings from Estonian economists that it could not be done. They said it was as impossible as walking on water. We did it: we just walked on the water because we did not know that it was impossible," he added.

Estonia forged ahead with its low tax polices in the face of attacks from the powerful high-taxing countries like France and Germany; French presidential hopeful Nicolas Sarkozy has even suggested that the lower-taxing new EU member states should lose their EU regional funding if they do not agree to increase their corporate tax rates.

Laar also took issue with the argument that the newer members of the European Union are too poor to afford low tax rates, arguing that: "Business-friendly tax rates produce more growth and thus more revenues for the public sector."

When Laar became Prime Minister, inflation in Estonia was over 1,000%, the economy was falling at a rate of 30%, unemployment was over 30%, 95% of the economy was state-owned and 92% of Estonian trade was dependent on Russia. By 2005, inflation had stabilised at 4%, unemployment had fallen to below 10% and gross domestic product was estimated to have grown by a robust 7.4% in 2005.

"Mart Laar, who was inspired by Milton Friedman, is the perfect Friedman Prize winner," noted Ed Crane, president and CEO of the Cato Institute.

"His courageous program as Estonia's prime minister created the 'Baltic Tiger,' a free and prosperous nation that is a model for the world to emulate," he added.

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