In Estonia there has been practically no serious discussion of Lithuania's success and its causes. What prevails instead is a self-assured arrogance that we will soon win back first place.

Last year we learned that Lithuania has overtaken Estonia in economic development. How did that happen? If we take a broader historical view, the economic fortunes of the Baltic states over the past 150 years have in fact taken some surprising turns.

Few people know which country was the undisputed Baltic economic tiger more than a century ago, before the First World War. It was Latvia. At the end of the 19th century, Riga became the third most important industrial centre in the tsarist empire after Moscow and St Petersburg. By 1913, Riga's population was eight times that of Tallinn – that is how backward and provincial we were compared with the Latvians of that era. Today, however, Latvia is the poorest of the Baltic states.

Lithuania, compared with Latvia and Estonia a hundred years ago, was another world entirely. Lithuania's level of socio-economic development lagged behind its Baltic neighbours by a full 20-30 years. Even the national awakening in Lithuania came several decades later. By the end of the 19th century, literacy there had barely reached the 50% mark, whereas in our country and in Latvia it already stood at 95%.

The First World War, in which Latvia suffered far more than Estonia, toppled the Latvians from their throne, and by the end of the 1930s the levels of prosperity in the two countries had largely evened out. Lithuania was still hopelessly behind.

In this context, it is interesting to read the memoirs of the German soldiers who invaded the Baltic states in the summer of 1941. Almost all of them recall the striking visual contrast on crossing the border between Lithuania and Latvia. Setting foot on Latvian soil was like returning to Europe – the towns, the villages and the way people dressed differed little from East Prussia, which at that time was part of Germany. Lithuania, by contrast, resembled Belarus and eastern Poland more closely.

Paradoxically, it was the Soviet regime that turned Lithuania into a developed industrial country. Forced industrialisation and urbanisation in Lithuania took place precisely during the Soviet period. However we may judge the measures of Soviet economic policy in hindsight, the fact remains that it was only on the eve of the restoration of independence that Lithuania had caught up with its Baltic neighbours in terms of development.

Latvia soon sank into a mire of corruption, overly cautious reforms and dependence on Russian transit. In Lithuania, too, the situation was not much better.

The subsequent period of regained independence and the years that followed, particularly the 1990s and the 2000s, are a time we Estonians can look back on with pride. Although many experts initially believed that Latvia had the best prospects of success, thanks to its infrastructure, its ports and Riga, Latvia soon sank into a mire of corruption, overly cautious reforms and dependence on Russian transit. In Lithuania, too, the situation was not much better.

In Estonia there is a myth that Mart Laar's bold liberal market reforms secured our success. That is not entirely true. The most important of the reforms appears to have been just one: privatisation. Unlike in Latvia and Lithuania, our privatisation was relatively transparent: instead of insider deals, foreign capital of Scandinavian origin predominated. Unlike Latvia and Lithuania, which were corrupt and largely under the sway of local oligarchs, Estonia seemed a Western and safe place in which to invest and build a business.

Estonia's success largely lasted until the end of the last decade, when signs slowly began to emerge that the Lithuanians had managed to make better strategic choices in several areas. If the experts are to be believed, Lithuania was able to make the necessary investments in the energy sector earlier than we did, which is why the energy crisis did not hit them so hard.

Lithuania's export sector is more diverse than ours. The government began pursuing an active industrial policy earlier and has also managed to diversify the new technology sector. Our innovation has for the most part remained focused on IT and, inspired by the myth of Estonian e-government, is currently casting about for direction. At critical moments the Lithuanians were not afraid to borrow, and they used the money far more effectively to invest in infrastructure, education and science. We, meanwhile, have been dominated for decades by a fetish for a balanced budget.

In short, Lithuania relied far less on the invisible hand of the free market, and its government took a much more active stance in developing the economy. We, on the other hand, believed that the attitude that the market will sort everything out and that the state must not interfere in the economy (which brought success in the 1990s) would keep us on the throne as the Baltic economic leader almost three decades later.

Perhaps most significant of all is that in Estonia there has been practically no serious discussion of Lithuania's success and its reasons. What prevails instead is a confident arrogance that we will soon win back first place. We shy away from the more uncomfortable questions about whether Estonia's earlier model of success may have run out of steam.

Perhaps at this moment it is worth recalling the golden words of Toomas Hendrik Ilves: “What brought us here will not take us further.”