Economic_History_anim.gif (3797 bytes)    



 Independence and Soviet Control  by Erin Hubbard

Agrarian economy under Russian Imperialism by John Koetzle,

Estonia's Economy

During Independence and Under Soviet Control 

by Erin Hubbard, March 2001

The Estonian economy during its independent years (1918 – 1941) was significantly different than in the 1940s and 1950s when Estonia was controlled by the USSR. The annexation of Estonia into the Soviet Union quickly changed the agriculturally based economy into a society of high industrialization. Once the industrialization began, the Estonian economy contributed greatly to socialist society. However, had Estonia remained independent and eventually industrialized on its own, the economy would probably have been better off, as it would have remained a free-enterprise society and integrated into the world market.

During the two decades of independence, Estonia was a flourishing agricultural society. The success in agriculture was largely due to land reform, which occurred immediately after the Baltic Revolution. Within a very short period of time big estates were transformed into small family farms. On these farms, Estonians produced a variety of products to sell both domestically and internationally. Dairy farming was the most popular trend, in imitation of Denmark, and Britain became the major customer. During this time, Estonia had among the most equal farmland distribution in the world and a very low Gini index of inequality. Although the government initially intervened by dividing the land, the economy was predominantly based on a market system, in which farming continued to be prosperous.

Industrial reform was much less successful during the independent years. Many Estonians did not have the skills needed for industrial growth, nor did they strive to learn such skills. In general, they believed “A tradesman’s wealth is temporary, a farmer’s is permanent.” The reasoning: “When a tradesman sleeps, his trade stands at the wall; when a farmer sleeps his crops continue to grow” (Taagepera, 52). Of the small percentage of industry in the Estonian economy, textile, timber, and metals were the most important. For a while, industrial trade with the USSR actually thrived, but later tapered off because of Soviet attempts at autarky.

After two decades of independence the Estonian economy was doing quite well, however the annexation of Estonia into the USSR ended the free-enterprise society. The first major change for the Estonian economy was a transfer from an agricultural society to an industrial one. The expansion of industry was important to the Soviets, as was the Estonian labor force, for Estonia had a skilled population relative to other areas in the USSR. In the new command economy, oil-shale mining was Estonia’s main industrial base. Although its energy content is low compared to coal, the USSR preferred to produce it domestically rather than import coal from another country. The oil-shale was turned into gas onsite and then delivered to nearby Leningrad to power factories.

By 1949 the size of the industrial labor force surpassed the prewar level, and it still continued to grow. The Soviets had transformed several of Estonia’s schools, houses, and other buildings into factories, and added nightshifts to speed up production. Because Estonia had relatively little damage from the war the Soviets were able to concentrate on new production rather than reconstruction. Although mechanization and specialization in the factories was increasing, labor productivity did not increase (Taagepera, 83).

A major difference between free-enterprise Estonia and Soviet-ruled Estonia was the effort level of Estonian workers. During the independents years, Estonians worked hard not only to increase their own well-beings, but also to increase the well-being of their country. Now, in an industry based on Soviet investment, Soviet management, and Soviet goals, Estonian’s were unable to perceive any identical interests, and did not work as hard. To increase labor productivity, occupation authorities began to import labor from Russia.

While industrial production increased, agricultural production declined significantly, mainly due to forced collectivization of farms. The first kolkhoz, or state- controlled collective farm, was formed in November 1947, and 8 percent of the farms were collectivized by March 1949. To make farmers join collective farms, the Soviets made individual farming nearly impossible by increasing taxes to as much as 75 percent of their “estimated income.” In addition to the tax squeeze, Stalin began ordering the deportation of thousands of farmers to Siberia and Northern Kazakh to fend for themselves. Estonian farmers, preferring kolkhozes in Estonia to those in Siberia, quickly collectivized. Soon the collectivization rate jumped from 8 to 64 percent, and after only a few years, the agricultural production had dropped to about half the prewar figures (Taagepera, 81).

To an economist, it may seem like good progress for a developing country to decrease farming and increase industrial production, as the Soviet Union did. Surely, history has shown this to be the case for the United States and European countries that experienced the Industrial Revolution. In fact, the Soviets must have thought industrialization would be good for their country, or they would not have put so much emphasis on the industrialization effort. In accordance with Marxism, the Soviets believed that a centrally planned industrial economy with public ownership would lead to increased productivity and technological advancements. The industrialization effort through socialism was clearly based on good ideas such as equal income distribution and smooth growth of production.

The change from agriculture to industry was, in itself, not a bad thing for the Estonian economy. However, the prevention of integration into the world market hurt the Estonian economy in the long run. If Estonia had remained independent, it is likely that industrialization would have come later. Additionally, the treatment of workers would have been much better, and a free market would have given Estonians incentives for increased efficiency and production. Today the Estonian economy would probably be much stronger if Estonia had never been controlled by the Soviets.

Works Cited

  • Smith, Graham, The Baltic States (New York: St. Martin’s Press Inc., 1994), 69-75, 86-88.

  • Taagepera, Rein, Estonia: Return to Independence (San Francisco: Westview Press Inc., 1993), 58-69.


The Progression of the Agrarian economy under Russian Imperialism

by John Koetzle, March 2001

After the Great Northern war in 1721, the Baltic regions of Livland, Estland, Ingria, and southeastern Karelia were relinquished by Charles XI of Sweden to Peter I of tsarist Russia. Peter I gave the local Baltic Germans powers over the most of the estates and representation in Baltic city councils. The local Baltic German Nobility control over the agrarian economy that at the time was the largest portion of GDP in Estonia. The agrarian economy was organized in a three-field system with the nobility at the helm. The rural economy was characterized as a feudalistic economy. There were several uprisings that led to the passing of legislation in 1861 that emancipated the Estonian peasantry. The growing gap in per capita income, the education of the rural classes, the support of the clergy for the peasantry and the growing economic hardships in the region were the major determinants that played an integral part in the progression of the Agrarian economy under imperialistic Russia.

The agrarian economy at the beginning stages of the rule of Peter I had made little or no progress since the Middle Ages. "The farmers still used the original convention to clear land for fertilization was to burning virgin forest areas or previously cultivated lands that were still in use". The major crops that were cultivated in Estonia were barley, oats, rye, wheat and alcohol. These were the same crops that were produced back in the Middle Ages. There was little knowledge of new crops or new farming technology that was being engineered in the West. 

The enlightenment and the new technologies associated with this time period had not yet penetrated the region. Estonia was relatively isolated from western ideas. The way estates or manors were structured was by class division. The tenants of the land usually rented the land for the right to use the land and the serfs worked on the land of the tenants. The serfs were required to work a certain number of hours on the land for the benefit of the nobility. This requirement was often referred to as the labor tax. This left little or no time for the serfs to cultivate for themselves to try to sell their own crops in the local market. The tenant's tax was that they were required to employ the labor for the land. The tenants were then given a small percentage of the profits that were drawn from the land from the nobility. "In addition to these taxes, peasants were liable for military service under Peter I in 1796". These taxes that were endured by the peasantry gave them little incentive to make strides in technology because they would not benefit from their increased output produced on the fields. The increased output would be realized by the nobility because the serfs had no time to use the land to produce for themselves and sell them at the market. 

There was growing unrest amongst the peasantry due to the taxes levied against and the numerous other limitations put forth by the Russian empire and the nobility. Another cause for the unrest of the peasantry was instability of commodity prices and alcohol prices. The relative decline of the prices of alcohol and crops led to decrease in income for the peasants. This led to a widespread panic and in 1845-1848 65,000 peasants converted to Russian Orthodoxy I the belief that the tsar would provide with some sort of aid. In addition, there was a rumor that the tsar was offering free land to colonists of unpopulated parts of the Russian Empire and a large number of peasants migrated to Russian. 

The emigration of a large number of Estonian farmers contributed to the large crop failure and eventual increased times of hardship for the nobility and the agrarian system. Marxists would argue that under feudalism the forces of production were in conflict with the relations of production and that is the only reason why it did not succeed. It is true that the relations of production (namely the serfs themselves) were not motivated by the economic system in place at the time to be more productive. And it is also true if there is no economic reason to work harder and that there is no motivation for the serfs to want to progress technologically. In consequence of this result, the society will inevitably become stagnant. In this respect I think Marxists are right. However, I think it is a very simplistic way to explain a downfall of an entire economic system. Having only two factors the forces of production and the relations of production that influence the failure of feudalism is at best idealistic. 

There are many extraneous factors that shaped the end of feudalism and the rise of the free market system in 1920. The other factors being the weak economy caused the estate owners to be immersed in debt. The estate owners were still living lavishly even though demand for their livestock and grains were down in the region. Adding to their troubles was the clergyman siding with the peasantry. If the church sympathized with the peasantry and god ordained it, then the nobility must be in the wrong. This stir up conflicts between the nobility and the serfs. Education played an important role because it made them realize that they could really run their own farms and manage their own affairs and that they were being exploited. 

This lead to the land reform laws of 1840's and 1850's increasing the prevalence of peasant rentals and ownership in the region. The economic failure of the nobility owned estate farms lead to the emancipation of the peasants in Estonia in 1861. This lead to the increased ownership of land owned by peasants. The law that was enacted in 1861 called for "the mandatory sale of peasant land by the large land owners at state regulated prices." There were also state inspections on the contracts created by the nobility to ensure the validity of the contracts. The new law also stated that there would be that the peasantry and the nobility be taxed equally. With the new law created there were now there was 14.3% of peasant owned farms in Estonia by 1868. 

The next forty years there were considerable innovations in agriculture. Partly due to the fact that the peasantry were producing to earn their own profits but the ailing economy played a major role. "The bad economy forced them to become more productive to be able to compete to charge above average cost and be profitable. The introduction of farm machinery and the consolidation of lots into unified lots and more extensive crop rotation to get the best use out of the land were a major factor. There were even agricultural societies that were formed and there were courses taught at Tartu University on agricultural engineering." {Raun, U. Tovio pg. 69-70} 

There were several determinants that led to the end of feudalism. The factors were education, economic depravity, the debt of the estate owners, the support of the clergyman for the peasantry and the growing discrepancy in wealth between the classes. All of these factors were elements that played an important role for land reform and ultimately the emancipation of the slaves and the modernization of agriculture in the region. The Marxist view that the forces of production and the relations of production caused the conflict is short sited and a farce. For technical progress and economic reform to occur there are many variables that and scenarios must occur to overcome outdated socioeconomic structures.


Estonia and the Estonians Toivo U. Raun




OK Economics was designed and it is maintained by Oldrich Kyn.
To send me a message, please use one of the following addresses: ---

This website contains the following sections:

General  Economics:

Economic Systems:

Money and Banking:

Past students:

Czech Republic

Kyn’s Publications

 American education

free hit counters
Nutrisystem Diet Coupons