The Milton Friedman Prize for Advancing Liberty

The Cato Institute today announced that the recipient of the 2006 Milton Friedman Prize for Advancing Liberty is Mart Laar, the former prime minister of Estonia and main architect of his country’s remarkable economic transformation into one of the world’s freest and most dynamic economies.

The prize and its accompanying $500,000 cash award will be presented to Laar on May 18 at the Drake Hotel in Chicago. Named after Nobel laureate Milton Friedman, the prize is awarded every other year to an individual who has made a significant contribution to advancing human freedom. The Friedman Prize went to the late British economist Peter Bauer in 2002 and to the Peruvian economist Hernando de Soto in 2004.

Upon hearing that he had been chosen as the third recipient of the prize, Laar said: “I am very happy and proud to receive such an important prize. The Milton Friedman Prize is especially important to me as I am such an admirer of Milton Friedman’s works and I am proud that we succeeded to prove in Estonia that Milton Friedman’s ideas really work. This is not a prize for me but to all my fellow Estonians, who have made the Estonian miracle possible.”

Throughout his public life, Laar has embodied the values of liberty and free choice recognized by the prize, and his dedication to these ideals helped him to lead his country to economic prosperity through a radical free market program.

Today, Estonia is hailed as a model for emerging democracies and is cited as an example that ailing Western European economies should follow too. Consistently near the top of the Economic Freedom of the World Index, Estonia is now a member of NATO, the EU and the WTO, with well over 90 percent of its formerly state-run economy privatized.

When Laar took the reins of power of the newly independent country in 1992, he was only 32 years old, and Estonia was struggling to heal from the wounds of Soviet occupation. Laar believed that the way to ensure success for Estonia was to cultivate freedom and self-determination. In only two years in office, he negotiated the withdrawal of Russian troops from Estonian soil and introduced the kroon, one of Eastern Europe’s most stable currencies. He also instituted a flat tax rate, a move which has been widely copied—even in Russia. Under Laar, Estonia removed price controls, discounted useless regulations, and saw the largest real per capita income of any of the former Communist states.

But as Laar, who served two terms as prime minister, has pointed out, he is not an economist: “I had read only one book on economics—Milton Friedman’s Free to Choose. I was so ignorant at the time that I thought that what Friedman wrote about the benefits of privatization, the flat tax and the abolition of all customs rights, was the result of economic reforms that had been put into practice in the West. It seemed common sense to me and, as I thought it had already been done everywhere, I simply introduced it in Estonia, despite warnings from Estonian economists that it could not be done. They said it was as impossible as walking on water. We did it: we just walked on the water because we did not know that it was impossible.”

“Mart Laar, who was inspired by Milton Friedman, is the perfect Friedman Prize winner,” said Ed Crane, president and CEO of the Cato Institute. “His courageous program as Estonia’s prime minister created the ‘Baltic Tiger,’ a free and prosperous nation that is a model for the world to emulate. Laar’s selection again underscores the international nature of the Milton Friedman Prize for Advancing Liberty.”

In 2001, Friedman agreed to lend his name to the award. He said in a statement about the award: “Those of us who were fortunate enough to live and be raised in a reasonably free society tend to underestimate the importance of freedom. We tend to take it for granted. It has made us in the West more complacent, so having a prize emphasizing liberty is extremely important.”

Members of the 2006 International Selection Committee:

Anne Applebaum, Editorial Board, Washington Post
John Blundell, Director General and Ralph Harris Fellow, The Institute of Economic Affairs
Edward H. Crane, President , Cato Institute
The Honorable Francisco Flores, Former President, El Salvador
Rose D. Friedman, Co-Founder, Milton and Rose D. Friedman Foundation for School Choice
Frederick W. Smith, Chairman and CEO, FedEx Corporation
Fareed Zakaria, Editor, Newsweek International

When Mart Laar began his second term as prime minister of Estonia in 1999, the country was in the midst of a fiscal crisis. The collapse of Russia’s economy the year before had left Estonia’s stock market reeling, and the government was struggling to fund the benefits promised by Soviet-era social programs.

Laar realized that the only way for Estonia to weather the crisis was to finally leave behind the legacy of its communist past. He announced deep cuts to paternalistic state welfare programs, slashed business taxes, and urged liberalization of international trade. By the end of his term, the government’s Bureau of Privatization was dissolved; more than 90 percent of the economy was in private hands. The economy was growing 7 percent annually, and Laar was widely credited as the force behind the creation of the “Baltic Tiger.”

Mart Laar believes in economic freedom because he believes in the Estonian people. As a young student of history, Laar braved Soviet arrest by researching Estonian resistance to the World War II occupation. In his first term of office, he negotiated the withdrawal of Russian troops from the country, introduced the highly stable Estonian currency, and implemented a flat tax that has decreased steadily since 1994.

Laar is not an economist, and he says that his boldness came mostly from naiveté. “I had read only one book on economics—Milton Friedman’s Free to Choose,” he said. “I was so ignorant at the time that I thought that what Friedman wrote about the benefits of privatization, the flat tax and the abolition of all customs rights, was the result of economic reforms that had been put into practice in the West. It seemed common sense to me and, as I thought it had already been done everywhere, I simply introduced it in Estonia, despite warnings from Estonian economists that it could not be done. They said it was as impossible as walking on water. We did it: we just walked on the water because we did not know that it was impossible.”

Laar’s dedication to progress and economic freedom has allowed the former communist state to develop into one of the most dynamic economies in the world, ranking in the top 10 countries in the Economic Freedom of the World index. At the dedication in 1995 of the F. A. Hayek Auditorium at the Cato Institute, House Majority Leader Dick Armey said of Laar’s government, “If Estonia is not a vindication of everything we believe in—from free trade to privatization to sound money to balanced budgets—I am at a loss as to how else one could validate our ideas.” Laar has defied common wisdom in Europe to prove that economic freedom works.

In 2006 the Cato Institute awarded Laar the Milton Friedman Prize for Advancing Liberty. Recently Mart Laar also became an economic adviser to Georgian President Mikhail Saakashvili.

Estonia in World War II (2005)

Estonia: Little Country That Could (2002)

The Challenge for Europe (Centre for Policy Studies, 1994)

War in the Woods: Estonia’s Struggle for Survival 1944–1956 (Compass Press, 1992)

“Tiny Estonia was reeling from an economic crisis when Mart Laar became Prime Minister in 1999. Russia’s financial collapse the summer before had whacked Estonia’s stock market and finances. So Laar took decisive action.… If only other European leaders could be as decisive, the Continent might be in much better shape.”

—Business Week

“[Mart Laar is] the most successful historian among the Estonian politicians.”

—Edwin Feulner, President, Heritage Foundation

“[Mart Laar is] the pioneer of Europe’s flat tax revolution.”

—Brussels Journal

“Riding on a strong mandate, Laar and his government set Estonia on the road out of economic stagnation, as high growth returned by the first quarter of 2000. Laar has been seen as the ‘golden boy’ of Estonian politics since his entry a decade ago.”

—Central Europe Review

“Mr Laar is hailed as the prophet of a revolution — the flat tax insurrection enveloping much of Europe. As the ‘father of the flat tax’ he is sought out by economists and politicians from across the globe, anxious for his counsel.”

—The Daily Telegraph (London)

“Much of the credit for Estonia being the most successful transition country goes to its brilliant and able free-market former prime minister, Mart Laar.”

—The Washington Times

“If Estonia is not a vindication of everything we believe in — from free trade to privatization to sound money to balanced budgets — I am at a loss as to how else one could validate our ideas.”

—House Majority Leader Dick Armey (at Cato)