n a year of a Velvet Revolution that deposed Eduard Shevardnadze in Georgia, and an Orange Revolution led to the election of Victor Yuschenko in the Ukraine, 2004 became a year for democratic advances in the former Soviet Union. Overlooked in these achievements, however, were the economic accomplishments of Estonia, recently ranked 4th on the Heritage Foundation/Wall Street Journal “2005 Index of Economic Freedom.” The rankings for the annual survey are compiled using 50 variables, including trade policy, fiscal burden of government, government intervention in the economy, property rights, wages and prices, and informal market. Countries are classified into one of four categories: Free, Mostly Free, Mostly Unfree, and Repressed. Estonia is the first Soviet satellite to crack the top ten, and ranks ahead of Western democracies, including the United States and the United Kingdom.

Estonia’s success story is due to several factors, but perhaps the most important is the government’s commitment to fiscal discipline. Currently the country’s budget is producing a surplus, and low levels of corporate taxation as well as a flat personal income tax have allowed foreign investment to pour in. According to the 2005 Index, net Foreign Direct Investment (FDI) is $688.2 million, and there is no tax on reinvested corporate profits.

Additionally, the weighted average tariff rate is .053%, and “non-tariff barriers are virtually nonexistent.” These measures have resulted in Estonia being the most business-friendly of the former satellite states, despite is relatively small population of 1.3 million, and the disastrous environmental after-effects communism left on its limited natural resources. To build upon its success, the government is further removing itself from the economy. According to the Index, the current flat tax rate of 26% is scheduled to drop another 6% by 2006.

According to the CIA World Factbook, electronics and telecommunications are the country’s strongest industries and the services sector accounts for 64% of GDP, a remarkable figure considering the infrastructure for such a modern economy did not exist a decade ago. Up until the fall of communism, Estonia relied upon industry and agriculture; today the two sectors account for approximately 35 % of GDP.

Estonia’s transition from Soviet satellite to market economy is ongoing, but its successes of the past decade have cemented a solid foundation for an emerging Central European economic power. Its independent judiciary, limited government intervention, and low tax rates make it an attractive investment. For a country of little more than a million to surpass the United States in economic freedom in just over a decade proves that success in previously devastated, undemocratic areas is possible so long as there is dedication on the part of both citizens and their leaders.