Chapter 8.4: Economy

The Estonian economy recovered quickly following more than five years of war, resulting in a boom at the beginning of the 20s. Although the metal and chemistry industry collapsed as it was not able to reorient itself to the new situation, the textile and paper industry expanded greatly. Many smaller enterprises were established to cater to the domestic market, instead of thousands of workers they only had 20-50 workers.


Lau village store, built in the 1920s. Many local stores appeared all across the countryside.

Estonia had close economical relationships with Russia, continuing to sell produce to the Russian market just like during the days of the Russian Empire. However, Russia changed its orientation in 1923, ending its economic partnership with Estonia and stopping commerce between the countries. This caused an economic crisis in Estonia, which was deepened by the laissez-faire economic policy, promoting heavy industry meant for the foreign market and giving out loans carelessly.

To escape the situation, the minister of finance Otto Strandman initiated a new economic policy which reoriented the focus of development from heavy industry to agriculture and promoted an agrarian economy. Exports were refocused from the Russian to the European market and by the end of 1920s Estonia was successfully incorporated into the European economic space. In 1928 Estonia passed money reform, replacing eesti mark with eesti kroon as currency. The industry modernised and reorganised with the help of foreign investments.



Otto Strandman (1875-1941)

The textile industry remained the most important sector, giving about a fifth of the industrial production in the late 20s. In addition to the two largest factories, which focused on cotton, many smaller factories were built in addition, that focused on niche products, like stockings, gloves, curtains, lace and so on.


The factory of AS Rauaniit, which produced jersey fabric. Built in 1926, now houses the Estonian Academy of Art.

The second most important industry was the foods industry, which gave about 19% of the total produce. In addition to flour, bread, yeast, fish, conserve, beer and spirits industries, some new industries appeared as well. Most notably the sweets industry, with candy and chocolate factory “Kawe” (nowadays Kalev) even exporting some of its produce. Margarine, pasta, noodles, tobacco and liquor industries appeared as well.
A Kawe candy box.

These sectors were followed by the paper and cellulose sector, the metal and machinery sector and the construction materials sector. Resource extraction industries like oil shale and peat industries emerged, which provided factories and railways with domestic fuel. In the meantime oil shale oil industry emerged as well, in 1924 a oil factory was built in Kohtla.

By the end of the 1920s roughly 40% of industrial produce was exported, most important destinations were Germany, Denmark, Latvia, The UK, France and the US.

In the 1930 the effects of the great depression reached Estonia. The drop of prices and barriers on trade on the international market and the loss of purchasing power on the domestic market had an effect on both agriculture and industry. The value of agricultural produce fell by 45% and industrial produce by 20%. Unemployment skyrocketed. Estonian financial situation worsened as well, as other countries devalued their currency. Parliament was not very keen on devaluing Estonian currency, the necessity of it to increase the competitiveness of Estonian products on foreign markets was not understood very well. The situation only started to improve in 1933, when the government finally devalued the kroon. To alleviate unemployment, emergency works are conducted, like the construction of roads.



Freedom boulevard (Vabaduse puiestee) in Nõmme, built by the unemployed in the early 1930s.

The economy started to quickly improve during the Silent Era, although not thanks to the regime but more so due to improvements on the world stage. Profits started to increase, more opportunities to expand businesses and invest arose. Estonia became a very successful exporter of meat and dairy produce, the main destination was Great Britain.






The government adopted a more interventionist policy and started to establish state owned companies, as it was believed that the private industries are not very good at withstanding international hitbacks like recessions. In 1935 a detailed plan for investments and the development of the economy was made. Industry focusing on domestic resources and local needs was created to withstand future economic crises. Oil shale, peat and oil shale chemistry and the cellulose industry were expanded. Many new majority state owned factories were created.

Agricultural land increased as meadows and pastures were turned into fields and irrigation systems improved, making the land more fertile as a result. The state centralised the export of agricultural produce, heavy restrictions were put on imports. Farms also started to adopt tractors and grain threshers.

Several new power plants were built, the existing ones were expanded, resulting in a 1.7 times increase in electricity production between 1934 and 1938. In 1938 a central plan for the electrification of the entire country was adopted. The electrical grid was supposed to be a single united one, the workload was supposed to be divided regionally between power plants to provide optimal output and the largest power plants had to be united with mainline power lines. To make this plan a reality in 1939 the AS Elektrikeskus was created, which is now known as Eesti Energia.

By 1937 about 13% of Estonian heavy and light industry was owned by the state. It was not only active in the resource extraction sector, but also in machinery production. The State´s Port Factories conducted ship repairs, built radio equipment, tram and train wagons and many other objects. The Arsenal factory produced guns and communications equipment for the army.

The quick expansion and development of industry, with industrial production doubling between 1934 and 1939 and tripling between 1922 and 1939, caused a shortage of workers. This was alleviated with hiring guest workers from Lithuania and Poland and rationalising production.

https://ajapaik.ee/photo-thumb/115102/800/piltpostkaart-turuhoone-tartus-emajoe-kaldal-1960ndatel/
Tartu Market Hall, opened in 1938.


Kohtla-Järve Oil Shale Mine. Built in 1937.



Kehra Cellulose and Paper Factory. Built in 1938


Ellamaa Power Station, opened in 1923.



Construction of the Tartu-Petseri railway line in 1930. Overall about 400 kms of railways were built during the 1920s-1930s.



Suursild (Great Bridge) in Pärnu, opened in 1938, destroyed during WW2.

The number of cities grew during the interwar period. In 1920 there were 12 in Estonia: Haapsalu, Kuressaare, Narva, Paide, Paldiski, Petseri, Pärnu, Tallinn, Tartu, Valga and Võru. In 1926 Nõmme, Põltsamaa, Tapa and Türi received city rights, the same happened with Tõrva in 1927, Otepää in 1936 and Antsla, Elva, Jõgeva, Jõhvi, Kallaste, Keila, Kilingi-Nõmme, Kunda, Kärdla, Mustla, Mustvee, Mõisaküla, Sindi and Suure-Jaani in 1938.



The town of Türi in 1929.

Altogether urbanisation levels remained low, with only about a third of the population living in cities by the end of the 1930s.

Overall by 1939 Estonia was ahead of Finland in terms of GDP per capita.

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