February Mailbag of Legislation

More lawmaking commentary today. Two interesting bills are up for a vote in the near future:

1) Establishing an LLC without cash.

There are a bunch of different ways to do business as an individual in Estonia - from signing ad-hoc contracts with your customers (the way I do it with translation agencies), to registering as self-employed, to starting a limited liability company.

Self-employed status gives you a bunch of benefits, such as a VAT number and the ability to write off business expenses, but also some inconveniences in terms of how you pay tax. Incorporating as an LLC is the best way to go, and the process is streamlined: you can do the entire thing online in half an hour. The big hurdle is that you need to have the starting capital, 40,000 EEK (~2500EUR). Up to half of it can be made up of material assets without additional paperwork, but you still need to have a pile of cash that will be tied up in the business. You can get the money out of the company's account right after it's established, but what if your business doesn't require any material investment? The only tools of the trade I need to run my freelance work are a netbook and an Internet connection. Now, I could use the LLC's starting capital to pay for both, VAT-free - but it's still very inconvenient to tie up 40k in a business with very little up-front investment and negligible recurring costs.

The new bill will allow an LLC to list the up-front capital as the founding partner's liability. Basically there's still 40k on the books, but it doesn't have to be an actual pile of cash or a bank balance. If someone has outstanding claims against my company, they can sue me personally to take up to 40k's worth of my personal assets.

The upshot is that anyone with a bright idea can incorporate over a lunch break, and start doing business immediately. Considering that we're a small country that is trying to stimulate high-tech, dynamic businesses where the principal investment is the owner's time and effort, this is an excellent move, and frankly I'm a bit disappointed that it took the government so long to get to it.

2) Mortgages to become non-actionable.

The gist of this is that a borrower's liability will be limited to the collateral. When a homeowner can't make the mortgage payments, the bank's only recourse will be to sell the house, and the borrower gets to walk away from it. Currently, the borrower is liable for the actual loan amount, so if the house is worth less than the balance of the loan, he'll have to keep paying. The only way to wipe out the debt is to go through a personal bankruptcy, which means five years of constant supervision by a court-appointed administrator.

I don't actually like the idea, because in my opinion the government only has a very minimal responsibility to protect people from their own stupidity, and overpaying in a booming market is the sort of mistake everyone should be able to make on their own. Certainly the economic liberals in power are also against the idea, as are the Swedish banks. Normally I would dismiss it as just another piece of populist legislation that has no hope of passing - it was introduced by the Social Democrats - but the BBN article claims there is support for it in the ranks of the coalition as well.

I'm pretty sure hell freezes over before Reform supports the bill (but then Jõgeva has been seeing -30C temperatures this winter), but there is at least one line of reasoning that might convince some IRL members with re-election jitters to go along with the plan: it's not like we're overly sympathetic to the plight of the banks. The effects of the property bubble's burst in Estonia could have been far more dire if we didn't have relatively strict lending rules in place already - most importantly, the loan amount was a direct correlation of the applicant's income, there was no widespread practice of giving "interest-only for the first three years" type mortgages to deadbeats trying to flip properties for a short-term profit. The insane growth in Estonia's real estate prices was precipitated by low interest rate margins and growing salaries.

So stricter-than-elsewhere banking regulations made the inevitable crash not as disastrous as it might have been, and by the same token, new and even stricter banking regulations are probably a Good Thing(tm) as we're recovering from the credit crunch. I still don't think it's necessarily a good idea, but if the Riigikogu's right wing sees a need to engage in some kind of populism, this is one of the better bills to support: it is straightforward in principle, has no immediately obvious loopholes, and its primary negative consequence is that banks will be forced to only issue home loans to people who can afford them, on properties which are more or less reasonably priced. Interest rates will go up, the construction industry will suffer another hit, and fewer people will be able to build equity rather than just spend a portion of their income on rent, but at least we'll have learned from our mistake and will be forced to rely on something other than real estate for our economic growth.

January Mailbag of Awesomeness

A few things have piled up, none of them deserving a whole blog post, but it's been quiet around here.

1) It appears that Estonia will be joining the Euro in 2011. There could still be a political decision to keep us out, but the numbers are seemingly in order. I won't dwell on this; I've already written at length why accession is good and why the common arguments against it are stupid. The Euro is not a cure-all, but Estonia is at its best when it has a goal to strive for, and the Euro was enough to justify the government's austerity measures - which are a Good Thing(tm) in themselves. The question is, what will our next grand target be?

2) In an unusual development, an MP has actually come up with a good idea: switch Estonia's smaller islands to electric cars. Nowhere on these islands (up to and including Vormsi) will anyone be driving more than 100km a day, so range is not an issue. At the same time, hauling petrol and diesel to these islands is a significant cost, whereas an electrical grid is something they'll have anyway. There are issues related to battery performance in cold temperatures, but as Norway is one of the world's biggest markets for electric cars, I'll assume there are solutions.

3) In the spirit of promoting Estonian businesses and services that I find genuinely useful and well-executed, have a look at ale.ee. It's a discount database, linking directly to purchase pages. There are still some bugs to iron out (such as listed prices from sites like Pixmania, which tack on some fairly hefty shipping charges), but overall it's a great, free service.

4) For all the technology and the Web-based nature of our lives, there is still no replacement for a person being really, really good at their job. To that end, I have been extremely impressed with the work of travel agents. Estravel had a good offer on Turkish Airlines flights to Australia , which I grabbed (fortunately I can plan my vacation quite far in advance). The Estravel agent was immensely helpful. I rerouted one leg of the trip after paying for the tickets, and it only cost me something like 250EEK; then, the agent helped me find connecting flights from Tallinn to Istanbul. Initially I booked flights with a stopover in Prague, paying 6700 EEK for them - a good 500EEK less than the airline's website quoted. Then Czech Arlines suddenly decided they weren't interested in flying the Prague-Istanbul route any more, so I got direct flights out of Helsinki - for a mere 2700EEK!

Two conclusions: 1) Discount airlines are essentially worthless, their only use is to force the mainstreamers to drive down their prices - this is not the first time I've found that a major airline will be both cheaper and a better experience. 2) Having a really competent person help you with your travel arrangements is excellent. I worked with Estravel's senior travel consultant Mare Must, but after the initial trip down to their central Tartu office, all of our communication was by email. If you're planning a trip, send an email to marem@estravel.ee - not only will you be giving her the commission (thereby positively reinforcing professionalism and excellence among customer service in Estonia), but you will most likely end up paying less than you would on your own.

Otepää Winter
Originally uploaded by Flasher T

Here's a nice photo for you. Also: account numbers for the Estonian Red Cross for donations to the victims of the Haiti earthquake. I gave a bit, you should too.

Philosophically, I'm against humanitarian aid as a matter of course and policy, but this is an emergency relief operation. I donate to the Red Cross for the same broad reason that I pay healthcare taxes: I hope I never need that sort of help myself, but if I ever do, I will be glad there's someone else on the other side donating.

Also, it makes me feel good about myself.

A Message for the New Decade - in Someone Else's Words

I guess it's been a rough few hours... My jaw's taken nothing but blows, the coffee ran out, I had to grab a cold shower, and my car got stuck in the snow. Someone suffered a stroke on the subway train, and I swore I'll never have a smoke again, and if it's all the same - I'd rather not be taking any calls today!

The fellow on the corner goes "The end is near!", and there's a fair amount of trouble in the atmosphere; don't forget about it, brother, be prepared if you discover that it's better not to bother with pretender's cheers... but hey:

It will be a tremendous year!

The Role and Purpose of Europe

In all the worries about the inefficiencies and shortcomings of the European Union as we know it, we must recognize that it is the most noble and significant endeavor by this century’s generations. The example, if not necessarily the template, of Europe is the key to building a global society that would implement our greatest humanitarian desires. In a very practical way.

The succession of supranational entanglements that eventually became the EU was envisioned as a safeguard against war on the continent, making any such action detrimental to the actor’s own interests beyond his borders. The EU’s remit is far greater today, but the method has proven itself. Another, related, factor is the return of an increasingly ethical colonialism (where ethics are at least partially driven by a deeper application of capitalism, prosperity in the colonies being recognized as the precursor of a new affluent market). Between them, these two offshoots are a viable framework for avoiding war among the Golden Billion altogether:  not only is armed conflict prohibitively damaging to an integrated infrastructure, but is simply unnecessary. Projection of power and exercise of influence can be accomplished through trade sanctions and benefits. The resource that a rival nation possesses no longer needs to be taken and held – no unique pleasure remains closed off to anyone with a desire backed by cash.

The conflicts facing the Western world today are not insurmountable; it is vital to recognize that they are also not intrinsic, nor intractable.

Climate change, even at its worst, entails an extreme inconvenience to our meta-infrastructure (such as settlement patterns), but it is not a threat to humanity’s existence. Sustainable energy is a problem that has long-term solutions today, what we lack is the consensus and political will; as technology advances to make our lifestyles more efficient and desperation increases over the difficulty of exploiting new resources, there will be a point where something – be it the mass adoption of nuclear power to drive electric vehicles with vast battery capacities, or a way to produce liquid fuel from coal and shale with a minimal environmental impact, or something else altogether – is accepted as the way forward. If the seas rise, Dutch civil engineers will be in great demand.

The world’s greatest problem today is not the technological or geological obstacles, but the social ones. While opportunity and access is greater and more universal today than at any time in our history, there is still a stratification that is not acceptable. We must not be blind to the lessons of our own past, specifically those of the seemingly eternal differences between distinct neighboring tribes right here in Europe: the English, French, Germans and Italians may never stop disliking each other, but they have found a way to exist within one structure, to their undeniable individual benefit. Interpersonal differences between nations can be set aside. Hatred is driven, ultimately, by envy (a type of which is insult).

The Western world does not have any significant internal conflicts; those it does can be managed. Threats to global stability and prosperity come from the conflicts between elements of the Western world and elements of humanity that have not (yet) been incorporated into the swelling Golden Billion. The quintessential conflict of our time, that of the Middle East, is based on envy of disparate living standards and insult over resource exploitation; the transient nature of the juxtaposition between radical Islam and the segment of humanity that Europe belongs to is proven by the very fact that no such all-encompassing enmity existed before the middle of the last century. (Historic wars between Europe’s ancestors and various caliphates, even crusades, were ultimately about land – i.e. resource; even the seemingly irresolvable quagmire of Palestine is a question of land.)

The solution to social conflict can be found in the example of the European Union. For two decades it has devoted vast treasure and toil to establishing prosperity in territories where established wisdom was diametrically opposed to Western ways.  It has done this while remaining benevolent, with a strict self-conscious restraint on cultural imposition. Its success is unassailable. Comparing European elements of the former Second World with those of Central Asia – which have either significant natural resources, or direct access to dynamic trade partners, or both – proves that no country that accepted Europe’s help would have been better off without it (and even the holdouts long held as skeptics’ examples, specifically Iceland, are now asking embracing Europe). The associated loss of sovereignty remains almost entirely ephemeral, and is indeed trumpeted rather more by populists in Old Europe than the overwhelmingly pragmatic population of New.

The European Union cannot expand without reservation, but it must continue to expand. The incorporation of the Balkans will make their issues with each other as theoretical as those between Ireland and England today. Further out, the eventual incorporation of Turkey and perhaps even North Africa will prove to more troubled areas that they too can see prosperity within their lifetime. The practicality and inevitability of success is the means by which we will convince the world’s disillusioned to beat their swords – not into plowshares, but into netbooks.

Europe does not need to be the world’s dominating force. It is the example of the EU that counts, not our specific set of values – after all, our primary message is that of allowing each society to maintain its values without sacrificing prosperity. Our success will only be strengthened if a Latin Union cements around Brazil, if South-East Asia becomes the battleground for revenue records between the confederacies of moderate Muslims and capitalist Chinese.

But it is Europe’s role, purpose and obligation to lead our brothers and sisters into this better world.