Estonia and Slovenia. When small is beautifully successful

The richest state in ex-communist Europe wants to copy the fastest-growing one

SMUG, small and thriving, Estonia and Slovenia share a lot. Both escaped in 1991 from large communist entities in which they were the richest bit: from Soviet occupation in Estonia's case, and from federal Yugoslavia in Slovenia's. That left both of them with marked superiority complexes: Estonians (all 1.3m of them) love explaining how much more western, wired and competitive they are than their ex-Soviet counterparts. For their part, Slovenians (2m) relentlessly underline their Alpine and central European heritage. (Never, ever call them Balkan.)

To be fair, each has a lot to be proud of. Brushing off outsiders' scoffing, they have created stable, prosperous countries with strong institutions. Slovenia is much the richest post-communist country, while Estonia's economy showed 9.9% year-on-year growth in the latest quarter--Europe's fastest rate. Both are in the EU and NATO. By 2007, both want to adopt the euro.

Estonians, twitchy about Russia, have long envied Slovenia's wealth and security. But now the tables are turning. Slovenia wants Estonian-style growth. The current rate, a projected 3.9% this year, will not match west European levels fast enough. Worse, other post-communist countries are catching up. "We are losing our first place," says the prime minister, Janez Jansa. He blames the gradualist approach of past governments. Having just returned from the Baltic states, he speaks of Estonia as "a good example for us".

One thing he would like to copy is Estonia's flat tax of 24% on personal and corporate income. Filing an annual tax return online, as 80% of Estonians do, takes a few minutes. "Our tax system is so complicated that even experts can't understand it, let alone foreign investors. And it takes from March to October to have it processed. In Estonia it's five days," says an envious Slovene official.

The second thing that struck Mr Jansa was Estonia's economic openness. That dates from 1991, when it had to start from scratch after the Soviet collapse. It privatised almost everything, shunning tariffs, subsidies, bail-outs and restrictions on foreign ownership. That brought huge foreign investment and a manufacturing boom, as well as thriving service industries and a large niche in the new economy. Skype, an internet telephony company, is based on software developed in Estonia; its development centre in Tallinn employs 100-plus geeks, and its Estonian shareholders are now multi-millionaires. There is talk of a $1 billion stockmarket launch for another company, Playtech, which designs internet gambling software.

Strong export businesses made Slovenia so rich in the Yugoslav era that it didn't seem quite communist. Now it doesn't feel quite capitalist. Although it boasts the region's best port, plus world-class makers of furniture, domestic appliances, and medicine, it has pampered, wobbly banks and creaky service industries. One reason is continuing state influence in the economy. Another is that insiders, not foreigners, are the main owners. Competition is weak and innovation lags; there is nothing like Skype. Mr Jansa blames, with some justice, the cosiness of "old networks" from Yugoslav days. Some, he says, are linked to the former intelligence services.

Mr Jansa's third big idea is reform of public administration. He was impressed with what Estonia calls e-government: the idea that mouse-clicks, not queues outside offices, are the best way for citizens to meet the state. That often impresses outsiders, at least on the surface. Many votes in this weekend's local elections in Estonia, for example, will be cast online. Yet the system is far from perfect: though Estonian institutions set up from scratch do indeed tend to be ultra-efficient, those inherited from Soviet days--like the xenophobic immigration authority--are anything but.

Mr Jansa, a fan of Estonia's administrative "simplicity", is trying to catch up. He has introduced online registration for entrepreneurs, and a law to cut form-filling: "If data is already in the system, it is the state's duty to find it, not the citizen's duty to provide it again."

Slovenia's sleepy and inward-looking public institutions are certainly ripe for change. In the global higher-education market, for example, Estonia boasts dozens of institutions (admittedly, of varying quality) offering competitively priced, multilingual courses. Some attract students of medicine and veterinary science from next-door Finland; increasingly, Asians come too. By contrast, independent higher education in Slovenia is held back by gruelling bureaucratic obstacles. The main university insists stodgily that all courses be taught in Slovenian.

Some reform-minded Slovenes doubt Mr Jansa's commitment to change. He was elected on a radical liberalising manifesto last October, but so far there has been little to show for it. And many features of Estonia, such as run-down health care, bad roads and a wholly deregulated labour market would horrify Slovenes, who pride themselves on high-quality public services. Estonians themselves fret about corruption and government complacency.

For all that, it is rare and welcome for a post-communist politician even to consider learning from another country. Most of them, especially those in big countries, insist that their problems are unique. That is almost always wrong.