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Chairman of the Estonian Chamber of Commerce and Industry and one of the owners of construction group Nordecon, Toomas Luman, finds that a prime ministerial candidate should first and foremost be able to answer the question of what will become of the demographic crisis in Estonia. The businessman sees controlled introduction of foreign labor as the solution.
A digital construction cluster was created in Estonia a few years back to bring innovation to the still largely paper-based sector. How much has construction changed in the past 30 years? Does it require a digital leap?
It does and it doesn’t. Most manufacturing is process-based, while construction is project-based. Every building has a unique design. It’s like with artisan jewelry. What can you automate when the artist makes every piece a unique creation?
It is one thing to manufacture a chair or a table in certain numbers – that you can digitize. It is not that simple in construction, while the design process has largely become digital. I do not think there are any major construction companies that still do things on paper.
Is it possible to boost value added in the sector and how?
It is possible, but where to get the people with the know-how and skills to pull it off or the patience to learn? We have labor shortage. Looking at the number of construction engineers and skilled workers in the future, it is clear we will not have enough.
Other firms have said that engineers are recruited out of their first year in college.
Definitely. We have a lot of people who are still studying. We do have certain conditions of course. They are paid extra to stay in school and graduate on time. You cannot move up without a certificate from a certain point.
You have said before that we should be more open to foreign labor.
Let us start by looking at demographic trends in Estonia. Birthrate is down, average life expectancy is up, as is the number of dependents per working person. This cannot go on forever. Something needs to be done. I do not believe that passioned appeals for all fertile women to start giving birth tomorrow can go far. And even if they did, it would translate into available labor decades from now.
I cannot imagine how we can climb out of that hole without foreign labor. I’m willing to listen to alternative solutions. I have not heard any so far.
Foreign labor is de facto already here. There has been reluctance to admit this for political reasons, and that has meant the entire process has been unguided. It is definitely worse for Estonia than a carefully managed process of bringing in labor.
Estonia had around 20,000 registered foreign workers last year.
I can tell you that no matter what figure you use, it is wrong. The truth is that no one knows how many we have.
How to manage a situation like that?
The decision to give one part per mil of the population residence permits was made under entirely different circumstances. It was a different demographic situation, different political situation, one where threats were different. Desperately holding on to a norm introduced in 1991 after 27 years of independence does not speak to our dynamic and innovative cast of mind.
Business organizations have proposed several models. For example, to exempt certain companies from the quota on foreign labor, with the relative importance of foreigners no greater than a certain percentage of jobs created for locals, 5 or 10 percent for instance.
Administrative contracts could also be considered. To have employers compensate the state for legal problems caused by employees and their expulsion. We have proposed a number of things to the interior ministry, but nothing has good enough.
Opponents of bigger foreign labor quotas say it drives down salaries of locals.
Those are emotional claims. They are not based on studies. It is emotion. You say that blue is beautiful, while I like red. Both are emotional assessments.
This debate would have merit had we carried out surveys to either effect. Without studies, we are talking based on emotions. It seems to me that on the political level, the entire debate is purely emotional.
Do you think the next government will do something about it?
I’m no clairvoyant. It depends on the make-up of the coalition.
The Conservative People’s Party (EKRE) and Pro Patria are against foreign labor.
That question has an agenda, and I will not answer it. I do not know the incoming government.
How often has the tax and customs board caught illegal workers at Nordecon construction sites?
I don’t know. To be honest, I don’t even know where those sites are today.
The board has set its sights on payment under the table. What is the relative important of that in the construction sector?
I don’t know. The difference in salary between members of the Estonian Association of Construction Entrepreneurs and the entire sector is almost twofold. It is a gray area as contractors employ engineers, while subcontractors employ less qualified workers. While we cannot say the difference is entirely down to payment under the table, the gap is too wide.
Are there any other ways to combat it besides raids?
Unreported employment has two sides. If the person offered money under the table refuses to accept it, there is nothing the one offering it can do. Funded pensions and other instruments like that have worked very well to curb the temptation to accept unreported salary. Talk of amendments to untie pensions from average salary earned have had the opposite effect lately.
There is a lot of talk of an economic crisis. Are we living boom times, and when could we see a crisis?
I don’t know whether I would call this a boom. There will definitely be another recession. Looking at certain indicators, volume of the construction market, then yes, it is on par with 2007. If we factor in inflation of prices, it turns out we are constructing fewer cubic meters. If during the previous boom, we had 80,000 employees in the sector, we have fewer than 60,000 today. This also means that a single worker creates a lot more value than they did a decade ago.
Looking at new building permits, they cover 60-70 percent of square meters we had during boom times. Volumes then and now are the same for non-residential buildings. The financial volume is the same, while we have considerably fewer workers, meaning that the sector has become a lot more efficient. In other words, there is no disaster on the horizon yet.
How difficult is it to find specialists today?
Very difficult. Even if there is a good specialist available, they know they are the only one on the market and will ask for an arm and a leg. But you can’t hire them, because then you’ll have a specialist receiving a much bigger salary than their colleagues. Because they are the only one, they want to be paid more. I think that anyone willing to work even a little has not trouble finding a job today.
The state has launched job creation programs in Southeastern Estonia where it covers half of new employees’ salary, provided companies hire at least five people. Is it sensible?
It is about more than salary expenses. It is more important to think about how to motivate local governments to create jobs in the private sector. The current income tax system, where local governments’ share is based on number of residents, is not working. It motivates one to find residents, not create jobs.
The chamber has made various proposals. Half of local governments’ income share should go to where the person lives and the other half to where they work. Everyone says that this will just see Tallinn get it all, but we could have separate regulation for major cities, including Tartu, and peripheral local governments.
I cannot imagine we’ll see new jobs in Southeast Estonia in a situation where local governments are not motivated to create infrastructure. Jobs follow functional infrastructure. Salary compensation helps a little, but it cannot serve as a fundamental base for long-term policy.
What is your opinion of parties’ economic platforms?
I have not analyzed them because I doubt parties take these documents seriously themselves.
Who will get your vote?
I always vote if there is a choice to be made.
That was not my question.
I cannot tell you that. It would constitute swaying public opinion. The chairman of the chamber of commerce and industry cannot suggest who people should vote for by revealing his choice. Others will not take kindly to it.
You believe Estonians will vote for the candidate you name?
Not everyone, but I’m sure there are those who would follow my example.
How would you describe your relationship with the current PM?
I have gotten along very nicely with all prime ministers. I’m in constructive opposition to all of them.
It would be naive to expect a prime minister to fight for business. It would be suicide for them. We look at all of the government’s initiatives based on whether they impede economic development or not.
Has the current government impeded or boosted economic development?
There are a lot of things they could have done better, but we must admit they haven’t derailed anything either. Perhaps expectations were lower than reality has turned out to be regarding the current government. There have not been major mistakes with fatal consequences.
I would have moved faster and more forcefully in terms of excise duties – not just frozen but also reversed them.
Alcohol excise duty hikes have had serious consequences.
Yes, they got that one wrong. Missed excise duty revenue is not the worst thing. Small shops disappearing in South Estonia is far more serious. Once they close their doors, it is unlikely they will be opened again. It would require renovation and new permits.
There is a chain reaction: without services, people move to bigger settlements and rural areas run dry. As a catalytic effect for certain tends, closing of small shops is a far bigger problem than X million in missed tax revenue.
What could be a question every prime ministerial candidate should be able to clearly answer?
What are we doing about Estonia’s demographic trend? That is key. What to do about it? Ignoring certain things, saying we have quotas and that’s the end of it is not the de facto situation.
Which is better: to have everything under control or to have people registered as on rent from another Schengen country? No one here or there knows their situation. This creates unhealthy competition and a security risk to an extent. A managed and controlled process would definitely be preferable.
Politicians and the mass media have a lot of explaining to do here. Because we are gearing up for elections and it is something that is very difficult to sell to a large part of the population, politicians have concluded it’s best to just ignore it. Otherwise, voters might think it is something they endorse.
You’ve said that courage to speak one’s mind is in short supply in politics. There isn’t even enough courage for a debate.
They are deathly afraid of losing votes. I don’t think the voter is stupid. Voters are capable of changing their mind if you explain matters to them using argumentation.