A failing state, yes, Somalia, no...

A commentator to an earlier post wrote something that needs an extensive answer:

It is ridiculous to speak of a failed state in the current situation. What has happened is simply an economic crisis. Granted, the country has gone from unique prosperity to hardship in a few months but this can in no way be considered teh failure of the State.
The economy wasn't dealt with properly and didn't diversify enough. It is incredible to turn this into some sort of failed state. Even more unbelievable is to compare Latvia to lawless countries like those in latin america or in Africa.
There is no sense whatsoever in being so gloomy and announcing the end of the world when the national economy is facing problems. Latvia isn't the first to have difficulties or to be bankrupt, nor will it be the last.

First, I made it clear that state failure in Latvia was different from that in Africa. It is not a lawless area with khat-chewing gangs roaming the streets in "technicals" and probably never will be (no khat, bootleg vodka, maybe). The state has a) dramatically failed to take adequate notice of warnings of the impending crisis and failed to take measures to prevent and alleviate it (what is being done now is burning down the barn to spite the horse running off to the woods) b) it has also failed to gain, and has probably completely lost the trust of its electorate and population. 49 % of young people in high schools or university (of some 1300 queried) see no future in Latvia and say they will move to work or continue their studies in a foreign country. This is the choice of governance issue I have written about earlier. There is no real choice to replace the current elite in Latvia, not in the timespan in which a number of irreversible events in the process of economic collapse and social degeneration will take place.

To be sure, there is a global economic crisis, trigger to a greater or lesser extent by policy mistakes in a number of large economies (in the US, stimulating the proliferation of subprime mortgages), but exacerbated by misgoverance in Latvia -- unshakeable political arrogance, corruption, cronyism. The present government is simply a hapless fall-guy, for whom it is too late to take any action to prevent an inevitable collapse of the state budget during the summer, a devaluation of the lat, dramatic levels of unemployment (even with the state printing money) and stagflation throughout most of the next decade, even as Europe and the rest of the world recover and Latvia's workforce migrates to work and live in better managed states and economies.

A million LVL misspelling of ....skim milk powder?

Note: Small memory failure-- the error was in spelling skim milk powder, not oatmeal.

Another experiment with a late-night recording of a videoblog. Am I getting too lazy to write? All you Latvian-language readers -- please also check out political scientist Ivars Ījabs article.

Maybe it even translates into some kind of English gibberish with Google Language Tools.

Emigration and state insolvency (video version)

Here is an attempt at a video version of my remarks on emigration and the likely insolvency of the Latvian government within a few months:

Broadcasting Live with Ustream.TV

The EU: A choice of better governance and society

There was a theme in my earlier post that should be expanded upon. It will soon be five years since Latvia joined the European Union (EU) and there will be various assessments of the impact of EU membership.

I believe the most dramatic and, perhaps, underrated impact of EU membership is an aspect of free movement of people that is little discussed. We often view this freedom as one to study or temporarily work (for experience or better pay) in another EU country, or, for some, to set up a business in another country. But, in fact, free movement allows EU citizens not only to move for economic or academic reasons, but also to make a real choice of governance and of social environment.

It is clear that in many countries, the level of government efficiency, responsiveness to its citizens, general transparency and lack of corruption differs significantly from Latvia. In many countries, governments may not be very pleased with criticism directed against them, but they don’t label their citizens “yappers” (vaukšķi). They try to respond to criticism because they realize that, ultimately, the critics are the people who “hire” them to run the country with their tax money. They are public servants, like it or not. In Latvia, the ruling elite has been a class unto itself, convinced beyond argument of endless “fat years” or of their own abilities as bulldozers or space shuttles.

I won’t mention the government of Valdis Dombrovskis here, because I think he was put iin as a fall guy or is the first officer of the Titantic, kindly asked by the captain to “take over the bridge” just as the floor starts to tilt a little. His role is to go down with a ship that can’t be rescued any more.

Beside the arrogance and state-capture corruption (dozens of seats on state-company boards for “our own people”/savējiem, though now some are being liquidated), Latvia also shows a high degree of societal degeneration. It can be seen on the streets -- staggering drunks, rude, brutal public transport wardens, nervous, morose, despondent or anger-ravaged faces everywhere. A sight seldom seen in other European countries, even Scandinavia, where public displays of moods or emotions are muted. 

For many ethnic Latvians, there is also a certain discomfort from the cruder aspects of the Russian population -- the swaggering, shave-headed, running-outfit clad lumpenproletarians/urlas that one sees, especially in the Soviet-era housing areas of Riga. Behaviorally, these people are like the inhabitants of an American ghetto -- diminished work ethic, substance abuse, aggressive and crude behavior. 

Given the choice of going somewhere where these problems are not present, and paying only the price of having to use another language at work and daily life outside the home (most likely English), it is perfectly logical that increasing numbers of Latvians are “giving up” on their own country and choosing places with a better (though far from perfect) system of governance and social environment.

Another facilitator of what I call governance/social environment choice may actually have been brought to Latvia by the “Bulldozer”, former Minister of Transport Ainārs Šlesers -- namely, the low-cost airlines led by Ryanair. These make “virtual emigration” possible and relatively painless. In other words, Latvians can live under better governance and in better social environments without losing contact with the essentials of what was important or good for them in Latvia. Within a couple of hours, anyone can fly in from Ireland, Britain or elsewhere in Europe to visit family, friends, favorite places.  With fast internet connections, video links and Skype, “real virtual” presence is possible as well.

So we have a phenomenon of as  yet not consciously self-contained Latvian communities growing across Europe (in Ireland, Great Britain, eventually elsewhere), communities, which like the one in Ireland, where only a few hundred of some 20 000 Latvians voted in the 2006 Latvian elections. This is a definite sign of political alienation, whatever other ties they may maintain with Latvia. Moreover, these communities are self-selected (people decided to emigrate, they didn’t flee like the post-war Latvian emigres) and consist largely of people with the ambition, skills and self-confidence to start a new life in a new country.  In one sense, a bleed-off of Latvia’s potential, on the other hand, an inevitable result of state/societal failure combined with unprecedented opportunities for choice of governance and ease of transport and communication.

The final countdown -- economic collapse this summer?

It is becoming more and more apparent that Latvia will not meet the demands of the agencies and organizations offering it loans of up to 7.5 billion EUR. Budget and public sector wage cuts of up to 40 % would effectively destroy education, medicine and law enforcement as they exist now. It does not matter that, theoretically, there are considerable inefficiencies and possibly great waste in the structures of governance which, after careful analysis and planning, could be reduced and eliminated. There is no time for surgical reconstruction, the government will or would have to use an axe instead of a scalpel.

Faced with the collapse of core public services and, probably, even the “untouchable” pension system, the government will most likely not be able to carry out deep enough cuts to satisfy the International Monetary Fund (IMF) and other lenders. It will not receive any external funds and, at some point during the summer, simply go bankrupt.

What will happen next under this scenario, is that the government will declare a moratorium (if not default) on its foreign debt, while the Bank of Latvia will be forced to let the lat (LVL) float freely (effectively quitting the pre-Euro accession process). This will enable the government to basically print money and undo some of the wage cuts, allowing public service employees to at least be able to pay for subsistence goods and services on the Latvian domestic market (food, rent and utilities).

The devaluation will be a disaster for all those with mortgages and loans in EUR as well as for the Swedish parent banks of Latvian banks that have lent billions over the past few years. By some calculations, the default of a substantial part of the Latvian private sector could knock several percentage points off the GDP of Sweden. For this reason, there could be radical measures taken by Swedish banks and the Swedish government. One measure could be the nationalization by the Swedish government of Latvian subsidiaries of Swedish banks. Another could be the formation of a “bad bank” style asset management company, as was done in Sweden in the early 1990s. One thing is clear -- there would be little sense in trying to foreclose on thousands, possibly tens of thousands of mortgages in default. There would simply be no market for these properties, as prices have already collapsed. The “bad bank” could take over most of these mortgages and simply wait for better times, renegotiating terms with the occupants of many houses and apartments, possibly selling off some at a later date.

A drop in the foreign exchange rate of LVL (possibly by 25 to 30 % -- a wild guess) as well as a surge in the money supply will eventually push the country back into double-digit inflation, at least on imported goods and services and domestic goods and services with substantial imported inputs (energy, raw materials). At the same time, Latvian export prices will drop by as much in the short-term, catching up with or exceeding the depreciation of “competing” currencies such as the Swedish krona and the Polish zloty. This could give a temporary boost to the export sector of the economy.  Whether that will suffice to turn around the decline in Latvia’s GDP (possibly up to 20 % in 2009) is doubtful. The mass default of private, EUR denominated mortgages will freeze new lending and destroy any credit standing the economy had, so on can probably forget about a recovery in lending to spur the economy. Most likely, Latvia will stagnate with high inflation until 2015 or beyond. With a recovery of the global economy in late 2010 or 2011, we will witness a new wave of labor emigration to other EU countries. This will not be a purely economic choice, but also a choice of governance and social environment made possible by Latvia’s membership in the EU. Latvian socio-economic exile/emigrant communities in Ireland, Great Britain and possibly Sweden will grow and essentially become permanent, contributing only repatriated funds to the Latvian economy. But all of these processes will, to a large extent, be the result of short-sighted, ignorant and corrupt policies over many years, leading to irreversible economic decline and societal degeneration.

The white-trashification of Latvia?

My recent post about public transport wardens (based on a blog post in Diena) illustrates something that is part of a broader problem -- societal degeneration in Latvia or more bluntly, the rise and persistence of what one could call white trash subcultures.
One increasingly used concept is that of the urla. I am not sure where the word comes from, but it describes a kind of uniformly stupid, dissolute,sometimes shave-headed or short-haired, largely-substance abusing youth whose uniform is shabby counterfeit-brand jogging outfits. Most often the term urla is applied to Russian speakers, but there are those who argue that there are Latvian urlas as well. I definitely think there are, but since the society as a whole is ethnically mixed, the urla percentage is useful in defining what one could consider the social degeneration of the society as a whole.
Fellow blogger Aleks Tapinsh wrote a few years back that urlas are a dying-breed, but I would dispute this, because it sometimes seems that the proportion of urlas is increasing (if not their absolute numbers). This could be because a large number of “normal” young people have emigrated, the urlazation of the social environment being one of the contributing factors. A related English slang term might be mook.
Above and beyond the urlas, I think that the proportion of what I would call seriously strange individuals is increasing. This perception may result from living downtown and working just across from the central train station. Train stations are magnets for the strange and deviant. In Frankfurt, Germany, I worked a block from the train station and once I passed a person lying in a large cardboard box several days in a row.
Mind you, this is not a pleasant strangeness, rather, it is a disturbing aura of expressionless defeat, surliness, depression, empty despair. This plays out not only on the faces of the babuska-beggers one sometimes encounters (for them, having some kind of expression is a useful misery marketing tool), but on many young people. In another context (maybe it was the LatviansOnline forum) I described these as “thin, lizardine young men in baseball caps”. I coined the phrase “lizardine” to describe a lizard-like behavior of expressionless, motionlessness broken by a short dash to another position, there, to reassume the “lizardine” stance. Dark urla or semi-urla wardrobe goes with this type of creature (I am wondering if these are not grown-up “booze babies”, like the developmentally disrupted crack babies produced in American ghettos).
I had noticed all of this long before the economic crisis set in, so that is not the cause of these sights. The urlas and others were already there. They add to the ghetto-street-life atmosphere that I already described back in 2000 in an essay I circulated on the internet (pre-blogosphere days) and excerpts from which I reprinted in an earlier post. I also used the term mutt to describe such people, although in terms of a total lack of ethics, parts of the educated and “upper class” Latvian elite could be described as mutts
To the urlas and the generally strange I should add the regular encounters one has with staggering drunks at inappropriate hours. After midnight on Friday, one understands, but Wednesday mornings at 9 AM?
The overall picture one gets is of a society that, perhaps, has passed a tipping point and with the added pressure of the economic crisis, will suffer the lethal drag (to any rapid recovery or normalization)of this social substrate. In more prosperous societies, it is possible to reallocate social services and education resources to pull some of the mutts and mooks out of their condition, but this is unlikely in Latvia.

There is a website in Russian with photos of urlas. 

Riga public transport wardens are pigs!

Diena carries a report (in Latvian) by a woman who arrived with a planeload of Italian tourists at Riga Airport. Most of them (young people) took the no. 22 bus to the city center, basically  "the airport bus" . The bus was stopped by a group of public transport wardens (whose job, as in other European cities, is to check for riders without tickets) who stormed aboard, one of them waving a baton, and immediately started terrorizing the Italians, who had not paid (nor been asked to pay when buying tickets from the driver) a fee for larger luggage (n0 such charges, as far as I know, in any civilized country). There was no sign in English explaining this fee. The Italians were threatened with a 15 LVL fee (around USD 30) on their first day in Latvia.

Comments to the Diena piece indicate that this kind of barbaric, piggish scum also work on other parts of the public transport in Riga. The next time there is disorder in this city, perhaps the offices of Rīgas Satiksme (Riga Public Transport) should earn a few paving stones? :) Or better yet, that passengers throw the pig-wardens off the bus, rather than vice-versa. 

The next time I read that someone has punched out a transport warden, I will not get too upset (OK, chances are, it will be some lowlife fare evader, but what the heck...).

Latvian teachers protest wage cuts

More than 10 000 Latvian teachers marched on the Cabinet of Ministers' building in Riga on April 2 to protest sharp cuts in salaries. The austerity measures have been imposed to meet cuts in public spending required by the International Monetary Fund (IMF)  and lenders from the European Union in order for Latvia to receive EUR 7.5 billion in loans to keep the country from going bankrupt. 

The old lady speaking at the end of the video (with my rather sketchy subtitles) illustrates the mood of many people (though she was a passerby watching the event, not a working teacher. The Minister of Finance, Einārs Repše, told the hostile gathering that it was economically impossible to avoid the wage cuts on educator's salaries, which in many cases do not exceed LVL 350 a month or around EUR 500. However, commentators on Latvian internet portals said that even at this level of income, teachers were privileged and many were paid a much higher combination of basic salary and workload supplementary payments.