Why Failed State Latvia?

I have changed the name of this blog to Failed State Latvia? from its earlier title of Thoughts from Latvia in an attempt to bring it back to life and up to date. Instead of some rambling and very infrequent observations about what is happening here, I hope to chronicle what I am beginning to see as the failure to launch of Latvia’s almost 18 year old experiment with independence.
My thesis is that Latvia has become a failed state lite. It is nothing like Somalia or Zimbabwe, the infrastructure functions, the trains run, there is 24/7 electricity, telecommunications, internet, food, water, heat (unless the bills have not been paid).
The problem is political and societal, and, of late, economic along with the rest of the world. The Latvian ruling political elite has reduced its level of public support to single figures. The four-party coalition government of Ivars Godmanis has fallen, and the People’ s Party (Tautas Partija/TP) is desperately trying, with it 1.6 % rating, to form the core of the new government. The New Era (Jaunais Laiks/JL) is pushing its bright young Europarliamentarian Valdis Dombrovskis for Prime Minister.
The last time around, the JL failed to change much in Latvia’s corrupt-to-the-core political system. JL’ s founding leader, Einars Repše, bungled his chance to at least start some process of change back in 2002 and his only success was to get Latvia into the European Union (EU). JL split with some of its other charismatic figures (among them, Sandra Kalniete, the Iron Lady of the Popular Front/Tautas Fronte) went off to form a new party, the Civic Union (Pilsoniskā Savienība/PS). TP lost some of its members including ex-Foreign Minister Artis Pabriks and ex-Minister of Economics Aigars Stokenbergs who formed the party Society for Different Politics (Sabiedrība Citai Politika/SCP).
The so-called opposition is split, public cynicism about politics is at an all time high, and the economy has been let go so far that there are almost no options left. The official forecast is for a 12 % drop in GDP this year, I would guess 15 - 18 % is more likely. Unemployment will run into the mid-double digit figures. With unemployment insurance running out after six months, there is likely to be serious social unrest as soon as the weather turns warmer. Latvia already had one riot on a very cold night of January 13. Some say the reasons were economic, I say they were mixed, with the main reason being total frustration and anger at politicians. But for the efforts of a small contingent of police (apparently backed by a larger number of military police inside), the crowd would have stormed the parliament or Saeima building and probably ransacked it during a running battle with those inside.
The economic crisis is global, but it was not a total surprise. Several economists and analysts warned of it as early as the summer of 2007 and said there were ways that Latvia could prevent the overheating of its economy and the pernicious expansion of credit riding on a real-estate bubble. Wages were also spiraling far ahead of productivity, while productive workers had already left for Ireland years earlier, where they were paid fairly for their labor. Management of many Latvian businesses was short-term oriented and often ignorant of modern, progressive methods and good labor relations. In addition, small and medium businesses with a modicum of success faced capacity expansion problems and could not tool up to economies of scale.
It is now rumored that Latvia will need additional International Monetary Fund (IMF) loans, on top of the 7.5 billion EUR it has already been promised by the IMF and other lenders (Sweden, the EU). It appears that, for all practical purposes, the government’s finances have fallen apart or are about to disintegrate and to top it off, there is no fully functional government. Had Latvia started saving for worse times in 2006 or 2007, had it privatized fixed network operator Lattelecom and mobile operator LMT when Sweden’s TeliaSonera offered to pay around 500 million LVL, the country would still have a potential budget deficit, but a much smaller one and a war chest of several hundreds of millions with which to avoid cutting salaries for police, health and education workers. Although, on the other hand, such a windfall revenue would probably have found its way into the pockets of the ruling elite or have been squandered in other ways. That is the way of failed state Latvia -- prosperity is to be stolen or squandered, poverty and austerity apportioned among those services most essential to sustaining a functioning civil society.
I am not a believer in big government spending, but education, public health and public safety are needed now more than ever, especially since affordable private alternatives or parallel structures have not been allowed to develop (i.e. insurance-based private medicine). Latvia will leave the crisis weaker and more prone to stagnation. The corrupt elite will find itself sucking juices from an increasingly dessicated economic corpse.