This article examines Estonia’s economic institutions, performance and vulnerability to the global economic crisis in the context of the varieties of capitalism framework. It shows that Estonia shares many characteristics of a liberal market economy, but that there are also some features which do not fit the classical model, notably its corporate governance institutions. It also suggests that the varieties of capitalism framework can account for key features of Estonia’s economic performance, including its growth trajectory and adjustment to the global financial crisis. The article also reflects on the broader significance of these findings for understanding post-communist capitalism.

It is widely assumed that the post-socialist transformation started in Poland. This is true, but only in part. Although it was indeed in Poland that various processes contributing to this dramatic change gained the greatest momentum in the 1980s, things were not at a standstill in other countries of central and eastern Europe, either. Another widespread assumption is that the post-socialist transformation was set in motion in 1989, when—first in Poland and then, through a chain reaction engulfing the entire region—‘real socialism collapsed’ or, as others would prefer to put it, ‘communism was defeated’. There is no doubt that later in many respects Poland has handled the challenges of the great transformation better than other countries. Hence, after already over 15 years of ongoing post-socialist transformation toward democratic polity, market economy and civil society, there must be certain lessons the other countries, especially the so-called emerging markets, can learn from the Polish experience. Hence it is worth having a closer look at what works and why and what does not work and whyŒ

The transitional recession in countries of Eastern Europe and the former Soviet Union has lasted much longer than expected. The legacy of the past and recent policy mistakes have both contributed to the slow progress. As structural reforms and gradual institution building have taken hold, the post-socialist economies have started to recover, with some leading countries building momentum toward faster growth. There is a possibility that in the wider context of globalization several of these emerging market economies will be able to catch up with the more advanced industrial economies in a matter of one or two generations. © 2001 Published by Elsevier Science Ltd on behalf of The Regents of the University of California.

The political and ideological concerns aside, the fundamental economic argument in favor of postsocialist transition to a market system has been a supposition that it will improve allocative efficiency and thus the competitiveness of the industries and standard of living of households. It is believed that the shift of property rights from the state to private sector must quickly facilitate such an improvement. Yet in the majority of cases, even after the first decade of transition, the economies have not returned to the path of sustainable growth. The countries tackling the issues of recovery and growth relatively better are these which were able to focus not only on de-nationalization of the state assets, but mainly on the development of venture entrepreneurship. The grass-rooted development of especially small and medium enterprises has contributed significantly to overcoming the transitional depression and then to recovery and fast growth. Yet to accomplish such a sequence specific systemic and policy conditions must be met. To facilitate such a path of development proper institutional arrangements must be executed by the governments, legal framework must be established and the government policies ought to support the rise and competitive performance of the small and medium enterprises (SME). Liberalization is a prerequisite of growth of this sector in transition economies, but is not a sufficient condition. The crucial factors involve the institutional arrangements.