A decade of stagnation ahead, looking to Latvia 100

It was the 91st anniversary of Latvian independence on November 18, a day celebrated in somber, but somewhat hopeful circumstances by Latvians outside Latvia for 50 years. For all those years, Latvians mourned the loss of their independence, but held on to hope that the country would regain its freedom. That happened in 1991 with the collapse of the Soviet Union.

Eighteen years have passed since then, and Independence Day is a good time to reflect on what has become of the country since then and what may await Latvia in the next few years. Will country be better off on its 100th anniversary in 2018 than it was on the 90th in 2008 or the 91st this year?

Unfortunately, a detached and rational analysis of what is happening does not leave much room for optimism. Latvia is being devastated by a global economic crisis about which it was repeatedly warned, and for which it failed to prepare (as did, for example, Estonia). Boosted by reckless lending and borrowing, the economy seemed to boom right after Latvia joined the European Union in 2004, and the government, deaf to warnings, spend money as recklessly (pedal to the metal) as some of the Swedish banks sharing the blame for events here.

The government had no plan for what would happen when tax revenues from an artificially overheated economy no longer sufficed to support an inefficient and bloated state administration. A depraved culture of corruption and cronyism flourished almost from " day one" of the renewed independence, but during rapid economic growth, its depredations were not dramatically visible. Now we see the Riga Children' s Hospital plundered (or, perhaps, used as "black treasury" from other corrupt activities) to the tune of LVL 700 000 (more than USD 1.4 million).

Now the country has faced a choice between state bankruptcy or budget cuts that amount to reducing Latvia, with no prior planning or warning, to a minarchy where the state can barely maintain such services as police, national defense, and the courts. By 2012, education, medical care and personal security will largely be services available commercially, not as a result of spending tax revenues. Personal incomes will not increase sufficiently for most Latvians to be able to afford these services on a pay-per-use basis and still pay taxes that will be largely spent to repay the national debt, offering taxpayers practically zero return on taxation.

Another way to express this odd sounding concept is efficient and effective governance. By joining the EU, Latvian citizens have a defacto choice of governance -- that is, they can move to countries that offer a better return on taxation, but less political representation (no or limited voting rights). In Sweden, a Latvian paying taxes only slightly higher than those proposed for 2010 by the Latvian government (with a soon to be zero return), obtains a return in the form of tax-supported (there ain't no such thing as a free anything) education, reasonably efficient tax-supported police, tax-supported medical care and better, less corrupt or simply less dumb-ass public administration.

So what do I see happening? Tens of thousands of Latvians are going to choose places to live with better governance and, probably, better jobs, wages and "general attitude" (a factor often cited by Latvian emigrants to other European countries, mainly Ireland or the UK, who have already realized that the monetary gains of emigration aren't spectacular). Those tens of thousands, perhaps as much as another 100,000 or more, on top of those already living abroad, will drain the labor force of much of its best and brightest workers and potential managers.

When the rest of Europe recovers, Latvia will lack the skilled labor needed to meet export orders from Europe because those who could fill them will already be out there in Europe. The Latvian state has shattered, permanently, any trust or reliance it had among its citizens. This was accomplished by almost two decades of half-assed misgovernance, corruption, idiocy, provincialism, nothing-specialism and pedal-to-the-metalism. It is valid observation, for many Latvians, both the young, who do not want to waste the life ahead for them, and the old, who don't rationally see any change in their lifetimes, that if they (those running the country) haven't gotten it by now (almost 20 years), they probably won't.

So what will we see? A lost decade of third-world-lite economic stagnation, an aging population with a dwindling tax-base to support them, an elite living off of its sleazewealth until even that runs out (but hey, we're OK now, Jack) and their foreign educated children refuse to come back to the backwater their parents created. The best and the brightest of the Latvian nation -- look for them in Dublin, London, Stockholm, Munich, Sydney, San Francisco -- and, if they live in Europe, as most will, dipping into Latvia for relatively cheap home visits on a low-cost airline. The lat, by 2018, will still be the national currency, but hey, it's preferable to pay in euro.

Latvian labor in Latvia will be cheap -- among the cheapest in Europe, but also not very smart or productive. Part of the reason will be that most who finished school after 2010 will have had an education that decreased in quality from year to year and never was that great to begin with. So labor will be rationally cheap -- rated by its quality and productivity. The best value for money will be those kids with Latvian sounding names finishing some of the better schools in Ireland, Britain, Germany or Sweden, and they will be worth the higher going rate as skilled workers or management trainees.

In short, Latvia, thanks to almost depraved misgovernance and a hapless population unable to dislodge its political elite, faces a gloomy and stagnant decade ahead. Yes, one should celebrate independence, but not to the extent of sacrificing rational analysis for feel-good patriotic false optimism.