Saturday, November 06, 2010

Harbingers of a new false dawn?

Three newly-elected and sworn former political-emigré Latvian parliament or Saeima deputies met informally with other ex-diaspora (the new terminology) Latvians living in Riga on a Friday evening and spoke with general optimism about what they expected the new Saeima and government to achieve.
Rasma Kārkliņa of Vienotība/Unity (as were the others, Atis Lejiņš and Imants Lieģis) talked about her hopes for reforming and speeding up the system of justice and fighting corruption. The others (Lieģis, minister of defense in the previous government, arrived late because of another engagement) were also upbeat.
Atis Lejiņš took some mild flak for purporting to belong to two political movements at once – Vienotība and the Latvian Social Democratic Workers' Party (LSDSP in Latvian). Its glory days as an exile movement in Sweden under its then leader Bruno Kalniņš long gone, the LSDSP is a borderline crackpot (my personal view) party that ran and lost in the October 2 election as part of the Atbildība/Responsibility ticket. Atbildība plastered Riga trolley-busses with the image of a woman (one of their candidates) putting her head in a noose (because of mortgage debt). This prompted the observation – “ticket number 9 – for hanging yourself”.
Lejiņš said he hoped the LSDSP would elect new leaders in January and then be able to possibly join or align with the Sabiedrība Citai Politikai/Society for a New Politics, a “social democratic lite” member of the Vienotība alliance. We shall see if the younger members of the LSDSP succeed in unseating party leader Jānis Dinēvičs, featured in the election poster campaign dressed and made up as a homeless beggar.

Harking back to 2002
The whole scene reminds me of 2002, when the Vienotība member party (and the party of prime minister Valdis Dombrovskis), Jaunais Laiks/New Era got elected and off to a promising start, speaking of clean and efficient government. The new government's Minister of Health, “Mr. Golden Hands” (as an undeniably good spinal surgeon) Āris Auders was exposed as a double dipper who received state health insurance payments for operations while also soliciting gratuities from his patients.
The new government of Einārs Repše then went on to consolidate remuneration for government ministers in a way that looked like (unless carefully explained) granting a huge pay raise to all ministers without them having a,chieved anything to show that they merited this apparent raise. Things did not go well after that and the Jaunais Laiks-led government proved to be a false dawn for anyone hoping to see an end to corruption and incompetance in the governance of the country.
I bring this up because the euphoria surrounding the victory by Vienotība in the recent elections has been shattered (or should have been shattered) by revelations that Vienotība deputy Silva Bendrāte has been in the pay of Latvia's richest man, Ventspils mayor and oligarch Aivars Lembergs, who faces criminal charges for money laundering and other economic crimes. Among other things, Lembergs used Bendrāte as a straw man (lady?) to buy a radio station in western Latvia.
To be fair, Bendrāte got economically entangled with Lembergs in the the late 1990s, before it was glaringly obvious that he was probably accumulating/skimming/extorting millions from lucrative transit-related (oil, fertilizer) businesses in and around Ventspils. Lembergs is another long story, but as a millionaire mayor, he is anything but Latvia's Michael Bloomberg.

Economy still comatose?
The economy also got mentioned in the Friday night discussion, with discussion moderator and one of the editors of perhaps Latvia's last independent publication, Ir, Pauls Raudseps talking of many signs of recovery. Harvard graduate Raudseps basically quoted from his own column in Ir where he talks of a more than 40% rise in exports and a 10 % increase in retail sales as indicating that both the external and domestic segments of the economy were recovering.
I don't doubt Pauls' mastery of the figures, but it must be remembered that these figures come against a background of month from year-earlier-month declines in retail turnover of more than 30 % in September through December of 2009. So, at best, this is a bottoming out at a level well below that of 2008 (where, of course, we were experiencing consumer spending on crack). Nonetheless,  the Latvian central statistics agency website shows the curve significantly below 2006, which is before the party leading to the crash of the past few years was fully pumped-up. So it is nothing to get excited about, sort of like detecting slightly higher heartbeat, blood pressure and other vitals in a comatose patient. It doesn't really change the comatose state, does it?

Gray economy or anarchistic improvisation?
Another issue raised in the informal discussion with deputies Kārkliņa, Lejiņš and, later, Lieģis, was the problem of the “gray economy” and tax evasion. The very word “gray” defines the problem, because what we are talking about is economic activity that is non-criminal (not drug trading, laundering of stolen goods, fraud, counterfeiting) but fails to pay full taxes.
I think the reason why there is such a gray economy in Latvia goes to the core of my failed state thesis. As I have repeatedly written, Latvia is not a classic failed state, like Somalia where whacked-out gunmen careen through the streets in “technicals” randomly shooting automatic weapons at stray dogs and yelling the equivalent of “yee-haah” in the local dialect. Latvia is a failed state lite because the trust of the population in the state (not really there to begin with) has been irreparably broken by the behavior of those charged with governing the state and by the behavior of the socio-economic elite in general.
So what is the gray economy? Certainly, much of it, the big-money part of it is “grabbers” who simply are accumulating personal fortunes by breaking the law that says one has to pay taxes (I will spare you anarchist arguments on the legitimacy of taxation, because I don't believe these people are even aware of them). I think that another significant element of the gray economy is the spontaneous, chaotic formation of alternative structures to the state that has “failed” the population and lost its trust. In other words, many entrepreneurs evade taxes and pay their employees in envelopes because they know the money will be better used this way. It will not contribute to paying for the world's most expensive (per meter of span) bridge across the Daugava river or other boondoggles. It will not maintain largely useless and hostile bureaucracies, such as a State Revenue Service that (the example is a lady who spoke up Friday night) harass a small, tax-paying private child-care center over petty matters while millions in taxes are owed by the “grabbers”. To contnue paying taxes under such conditions is a form of law-abiding masochism.
In short, a good part of the gray economy is an anarchistic improvisation to make up for what the state cannot, will do, or is and will be incapable of doing for the foreseeable future.
I have previously brought up the concept of “return on taxation”, which, in Latvia, is negative and getting worse as public services are cut and underfunded. But this is a general case of everyone making economically-motivated decisions, even when it comes to obeying the law (at least in case of malum prohibitum – not doing forbidden things that are not evil in themselves). Thus, in breaking speed limits or jaywalking, we take a risk of a fine in exchange for getting somewhere a bit faster. We also pull out of poor investments to avoid economic loss. So it is also logical that we pull away from non-performing “assets” such as the Latvian state, even if there is some risk of penalty (against the strange background of – the larger the sum we rip off /or deny getting ripped off by the state, the less likely we are to suffer for it. The risk is greater being a day late with the pendanticly calculted social tax on four employees at a day care center).
At the end of the meeting with the three former exile Latvian deputies, it was agreed to give the new government 100 days to set its course before making a judgement. Fair enough. However, I have already drawn my own conclusions about the Latvian state and I will not be holding my breath for anything dramatic.  

Thursday, November 04, 2010

Some thoughts about the new Latvian government

I sat down late at night and recorded some ramblings on the new/old  Latvian government, partly to test my new HD webcam.

Sunday, October 31, 2010

Latvia patches together a two-party coalition government

Outgoing and incoming Prime Minister Valdis Dombrovskis Vienotība or "Unity" party alliance has managed to patch together a two-party coalition government that clearly reflects the emerging political tensions inside both the alliance and the coalition as a whole.
Vienotība will get seven of thirteen ministries, including Defense, the Foreign Ministry, the Ministry of Interior and the Ministry of Finance, with the remaining posts going to the Zaļo Zemnieku/Green Farmers alliance, a political faction strongly influenced by Ventspils mayor Aivars Lembergs, an oligarch under criminal investigation for money laundering, bribery and other crimes.
The two-party coalition was formed after effectively pushing aside the nationalist Visu Latvijai/Tevzemei un Brīvībai LNNK (All for Latvia/Fatherland and Freedom) alliance, which was included in coalition talks immediately after the election. This was a result of internal conflicts in Dombrovskis' alliance, with the centrist Sabiedrība citai Politikai/Movement for a Different Politics objecting strongly to the present of what it considered radical nationalists in the government.
This development confirms predictions this blogger has heard for months that once in power, "Unity" would soon dissolve in "disunity" as latent political and personal ambitions rip apart the fragile electoral alliance. It is also unclear to what extent Lembergs, threatened with prosecution for numerous economic crimes (but still the Green/Farmer choice for Prime Minister in the recent election campaign), may use his influence to disrupt the new government. A "worst case scenario" could be that the Green/Farmer coalition deserts Dombrovskis to ally with the second place, pro-Russian Saskaņas Centrs/Harmony Center, leaving (dis?) Unity in opposition with its spurned partner, the nationalists and the Par Labu Latvija/For a Good Latvia alliance representing oligarchs Andis Šķēle and Ainārs Šlesers.
The choices for ministers that have come to light so far are not impressive. Despite tens of thousands of negative (minus) votes, Linda Mūrniece has been nominated to continue as Minister of Interior. In the outgoing government, she angered police unions, sent the riot squad against protestors in Bauska and was caught driving her children to school in a government car.
Artis Pabriks, a former foreign minister, has been suggested as minister of defense, replacing the otherwise competent British-Latvian Imants Lieģis, who, after working hard on reforms and spending controls at the ministry, is now returned to a seat in the parliament or Saiema, thank you very much... Ģirts Valdis Kristovskis, a former nationalist and former defense minister, has been nominated for the post of foreign minister.  Artis Kampars, whose English-language skills proved second only to "Nothing Special"  former finance minister Atis Slakteris,  has been nominated to continue as minister of economics a outward facing ministry if anything.
The emerging government also faces its first major scandals. The website "" (meaning "Enough, already") led by hatchet-job journalist Lato Lapsa, has disclosed that Silva Bendrāte, a "Unity" parliamentarian, has been secretly financed by Lembergs, who used here as an intermediary to buy a radio station in the western Latvian district of Kurzeme. Bendrāte says she didn't know of Lembergs' possible criminal activities when she agreed to the deal some 13 years ago, having perceived the Ventspils mayor as a dynamic, capable politician.
Also under attack from ""  is newly-elected "Unity" candidate Lolita Čigāne, a former head of the anti-corruption group Delna (the Latvian affiliate of Transparency International). Čigāne and her husband Nils Students, who own a boutique in Riga, paid an administrative fine several years ago for bringing items such as kerchiefs and other textiles from Turkey through customs without paying import duties. Čigāne says this was inadvertent and the matter was settled after she paid a fine, Moreover, the fact of having an administrative violation does not create a dependency on outsiders, as may be the case with Bendrāte's relationship with Lembergs.
"" is a strange website, using the skills of investigative journalist (formerly of Diena) Baiba Rulle and Agnese Margeviča, as well as the controversial Lapsa. The site publishes copies of documents backing its allegations of corruption, duplicity and incompetence, and it seems to show no political favoritism, especially considering Lapsa's almost foaming-at-the-mouth editorial attacks on Bendrāte and Čigāne. He accuses both women of ethical depravity and calls them liars.
This is a bit harsh -- I would give the benefit of the doubt to Bendrāte's claims that, back in the late 1990s, Lembergs was not seen as an evil, manipulative oligarch. If Lapsa's harsh judgement of Čigāne were to be applied across the board, then no one with a parking ticket, a speeding violation or a youthful citation for public drinking or littering should every run for elected office. "" is doing a remarkable job of publishing documentation of corruption and depravity -- it is a sort of Latvian "Wikileaks", but its editorializing crosses the line as far as being fair, balanced and giving some leeway to  the possibility that people in politics can make honest mistakes.
As for my take on the new government -- it is starting to look a bit half-assed, to use an American term, and I don't see it lasting the next four years. Dombrovskis faces the almost impossible task of cutting another LVL 1 billion from the budget over the next two years, turning Latvia into a nightwatchman state at best, with drastic cuts (public statements notwithstanding) in pension, medical care, education, as well as sharp tax rises just around the corner.
The government still believes it can join the Eurozone in 2014. I think this is highly unlikely. 2020, perhaps. The pauperization of the population by wage cuts and unemployment will negate any effect from tax increases (who can afford them?) and the targets for a reduced budget deficit will not be met. Emigration is on the rise -- official statistics indicate that over 7700 Latvians left the country in the first nine months of 2010, which is probably only the tip of the iceberg (I would guess that in reality, two or three times as many have left and will not return in the foreseeable future).  There is also an economic logic to tax avoidance or evasion -- the population has experience and will continue to experience a drastically falling "return on taxation" -- more taxes, worsening public services.  So why, purely in terms of economic calculation, should anyone make an effort to pay?
The new government, most likely, will be formed in the next few days, but it will continue to preside over a failing state lite. I see nothing that will change that.

Sunday, October 03, 2010

Latvia: Re-electing the "best" crew for the Titanic

The Latvian election has ended in victory for the current coalition and defeat for the attempt by Latvia's oligarchs under the banner of “For a Good Latvia” (Par labu Latviju-PLL), leaving them only eight seats in the 100-seat Saeima or Latvian parliament.
The sitting Prime Minister Valdis Dombrovskis' alliance “Unity” (Vienotība) will have 33 seats in the Saeima, the opposition Harmony Center (Saskaņas Centrs) 29, the current coalition member, the Greens/Farmers' Union (Zaļo un Zemnieku Savienība) 22 seats and the nationalist alliance All for Latvia/Fatherland & Freedom/Latvian National Independence Movement (Visu Latvijai/Tēvzemei & Brīvībai/LNNK) eight seats.
This looks good to a lot of people – continuity, stability and the like. However, one mustn't forget that some central issues were discussed very little or not at all, namely the economy, which is only showing some tentative green shoots of recovery. Exports and industrial production are up, consumer spending, too, from the bottom of a deep, depression-level pit. Economic indicators seemed to be bumping along the bottom, bouncing up a little. Second quarter seasonally-adjusted GDP was up 0.1 % from the first quarter, but still down 3.9 % from the second quarter of 2009, when the economy was already in free fall.
Non -financial investment, which sounds much like capital investments of the kind made in buildings and production facilities, fell just over 42 % in the first half of 2010 from a year ago. Investment of this kind is both a bet on the long term future based on current and recent past conditions, and the basis for the future expansion of production and economic activity.
That all would look bad enough, but it now looks like next year's budget cuts – between 350 million and 440 million LVL, depending on whose statistics you believe, will be at the top of the new government's agenda. These are spending cuts, which essentially means the government will transfer less money to someone, whether it be government employees (further salary cuts or dismissals), lower payments to pensioners and benefit receivers, or to those selling goods and services to the state (less public sector purchasing). Broadly speaking, these massive cuts amount to corresponding reductions and/or reallocations of purchasing power in society.
Simply put, police, teachers and other public sector employees facing another double-digit income cut or unemployment, meaning they will be reduced to subsistence spending on food and shelter. They will become minimalist consumers, which will impact on domestic demand for goods and services provided by the private sector, leading to revenue cuts for companies, lower profits or even losses, and possible staff and/or salary reductions in private companies. The vicious circle will continue.
As for Latvia's so-called export boom, it is great news for lumberjacks (tree harvester operators), sawmill staff, people in the food and metal-smelting industries. There is simply more demand for lumber in export markets and Latvia is supplying it. Not a value added product. Food? Someone has to stir the yoghurt vats. And yes, we import, melt, and re-export lots of junk metal as intermediate metal products, reinforcing rods and some metal gadgets. There are no real, innovative, high-value added Latvian products on global markets, at least not on a sufficient scale.
In order to create and sustain such innovative, high-value-added industries, the country needs productive, educated skilled labor. The pool of such labor is being depleted in at least two ways. First, skilled and educated people (not just country folk wanting to pick mushrooms for a better hourly rate) are leaving the country, frustrated and disgusted with politicians and the corrupt and incompetent system they have created. They are making the easy of choice of governance afforded by the European Union (EU). These emigrants have lost faith in and hope for Latvia, and they have the skills and willingness to learn and adapt, but also the possibility to come “ home” for the weekend for under 50 EUR. Their disillusionment is the product of 20 years of what, in some young adults, would be called “ a failure to launch” - the inability to find a place in life and get on one's own feet.
The pool of skilled labor will also be depleted by the underfinancing of an already dodgy educational system (teacher salaries cut, ageing university professors). The number of students able to afford a higher education (never mind whether they chose the right fields of specialization) will be decreased and those remaining may seek and education abroad and remain there.
The Dombrovskis government created none of these problems, but it took them over as a “fall guy” for the gross mistakes and folly of previous governments, namely, the governments formed by the politicians behind the PLL. That he was rewarded by re-election for not “falling” (bankrupting the country) doesn't mean that things are no longer falling.
On Twitter, I have called the win by Vienotība a re-election of the crew of the Titanic. To be more precise, instead of electing those who would have crashed the ship into a second iceberg, we now have people trying to run the economy who will at least let most of the lifeboats get lowered, then let the wreck drift for an undetermined period.
In other words, there were no choices with any good consequences in this election, just some with less disastrous ones. One thing that is not in the cards is any kind of recovery for several years, probably most of the decade. The Latvian economy will muddle along, stagnating, capital starved, bleeding brains and skills, barely able to pay off what it borrowed because of the folly of governments up until 2009. Chopping trees, melting junk into reinforcing rods and exporting food will not suffice to restore domestic demand, and further cuts in public spending, even if unavoidable (something I don't dispute), will lead to both increased pauperization of the population and emigration of those who refuse this fate. The hardest burdens will fall on those unable to avoid them by emigration – pensioners.

Sunday, September 19, 2010

Latvian Elections will lead to Premature Minarchisation

Whoever wins the Latvian elections will face the unavoidable issue of drastically cutting the government budget and basically taking a great leap toward the perhaps unintended end result of the international lending program of reducing Latvia to one of Europe's first minarchies.

A minarchy is a state which has the absolute minimum of government, basically just police, some kind of state dispute arbitration or court system, and a minimal, volunteer defense force. All other services that we expect from government today are delivered in a minarchy by the private sector, as a business, a cooperative non-profit enterprise, or as charity.

If Latvia makes the budget cuts of around another LVL 900 million over the next two years, it is hard to imagine it as anything but an improvised and unplanned leap into minarchy. There will be further reductions of government salaries and staffing, leading to further claims for unemployment and to emigration by state employees pre-empting their inevitable dismissal.

To use a Latvian expression -- like "amen" in church" -- we will see whatever new government is put together after October 3 (the elections are on October 3) sooner or later announcing drastic cuts in spending for education, health care and pensions. Education and health will be pay as you go, probably with no tax deductions, and pensions, if all else fails, will simply be cut to just around subsistence minimum with the retirement age quickly raised to 65 or 67.

A true minarchy is a generational project requiring a gradual reduction of entitlements from government, shifting these to non-state institutions (pension and health insurance companies, cooperatives, charities). This, in turn, presumes that society becomes prosperous, that the wealth and value consumed by taxation and the state can put to other purposes, and that the society generates steady economic growth and increased innovation.

In Latvia, there are virtually no signs of the kind of economic recovery that could create the basis for any kind of prosperity in the foreseeable future (before the 2020s). Latvia's export statistics simply show that this country is chopping more trees (the forestry sector) and exporting more foodstuffs.  The high tech, high value-added part of the export pie is miniscule.

The terms of the International Monetary Fund (IMF) and European Union loans to Latvia preclude any kind of economic stimulus, and efforts to spend EU matching funds have been slow, ineffective, and hampered by spending cuts that prevent the government from matching even existing EU funds on offer.
Larger economies, such as the US (not an EU member) have been spending at a "devil may care" rate (or as Latvians would say " uz velna paraušanu"), with mixed results. Latvia may feel a slight indirect effect of larger nation stimulus and/or recovery in an increased demand for lumber and, of course, labor.

There has been, to be sure, crazy talk of ditching the entire lending program or re-writing it, which ignores the fact that Latvia's budget deficit cannot be covered by lending on any better financial terms (interest rates) than the IMF and EU package. No bank, no buyer of government securities is likely to give better financial terms.  But that does not solve the problem of a stagnant economy and emigrating skilled labor force that Latvia faces for the next five years, at least.  Nor does it restore, to my mind, the irreparably broken trust in political institutions.

Here, one could say, at least some Latvians are ready, ideologically, to accept a minarchy, since the government/state has done nothing and will do nothing for them, has broken promises and withdrawn entitlements (not all of which were wisely granted) and will break more promises and take away almost all tax-financed entitlements in the near future.

That, naturally, poses the question of how to deal with such issues as education, health care, even public safety (as police forces lose their best and brightest, of which there were not many to begin with). The easiest way out is to go where these services exist as a reasonable "return on taxation"  and where the salaries from which taxes are taken are much higher than in Latvia. In other words, emigrate, and as Europe recovers, tens of thousands will do so.

Those remaining will probably tolerate a gray economy approach. If paying taxes gives no tangible return and "pays" for vanishing entitlements, then pay in cash in envelopes, especially if you know that your workers, who are not drunks or spendthrifts, will use the cash wisely -- to support their elderly grandparents, to educate (for pay) a child, to pay a doctor for good health care.

Since the gray economy is technically illegal, there will be little opportunity to create formal structures such as education cooperatives (funded by "envelope earnings) or health cooperatives, never mind hiring private police. Seeing cash diverted for economically rational reasons (getting something rather than nothing for one's money) to such informal, grey economy structures will bring down what remains of the State Revenue Service and other repressive structure, who will be increasingly blunt, dumb and brutal in their activities (having lost any educated, sophisticated staff to Ireland or elsewhere). The same people who hound mushroom and berry picking old ladies for LVL 30 monthly licences in lieu of tax, will hound the teacher who advertises " will teach for cash."

The end result of processes in Latvia set in motion by the credit boom of the mid-2000s will be that, after all the budget cuts are made, will will have a "minarchy of poverty", more or less the Third World kind of minimal government where a poor, poorly educated population keeps a primitive, subsistence economy cranking along, unable to generate a wealth surplus sufficient to either capitalize the innovation and entrepreneurship needed to lift the economy out of stagnation, nor to fund a state that can provide some of the tools (education, health care, security) for being able to do so.

Saturday, June 05, 2010

Riga hotel removes "Gay Pride" photos during gay-related conference

The management of the Hotel Alberts in Riga  ordered the removal from a bar area to elsewhere of a photo exhibit of last year's Pride event in Riga that was to be displayed during a low-key conference on lesbian, gay, bisexual and transgender (LGBT) issues organized by the Latvian LGBT organization Mozaika.
The photographs were by Austrialian photographer Madeleine Marcus Bentley and showed scenes from last summer's march, in which LGBT marchers and their supporters were allowed to march down a short, police protected stretch of a public street instead of being confined to a park or a cordoned-off area to keep angry counter-demonstrators at a distance.
This year there was no Pride march in Riga, it took place as a pan-Baltic event in Vilnius, with some incidents caused by anti-gay protestors. Instead, Mosaika held a conference with some speakers discussing the history of LGBT people in Latvia and the like. While I did not attend the conference (the reason I have supported Pride is as a pro-free expression, pro-tolerance libertarian) it appears the photo exhibit was intended as a backdrop to the event.
The hotel management, apparently afraid the photos would offend patrons in the bar, ordered the photographs removed to another area. It is not clear whether the exhibit may have been put up where it originally was because of a misunderstanding, but it is clear that the it was removed because of a presumption of homophobia among potential bar guests.  As far as the Latvian population goes, the managers of "Alberts" may not have been off the mark. Foreign guests probably have seen political and social-issue demonstrations and shouldn't be upset unless they come from some ultra-religious Third World rathole, and not too many of them make it to Riga as hotel guests.
Whatever the reasons, this incident is yet another reflection of Latvia as a still-backward, failing society, that cannot bring itself to exhibit photos of a controversial event with, as far as I know, little or no controversial content (images of Pride events in other countries have shown extreme costumes, same-sex embraces and the like, as if that had never been seen before...).
I am still not sure whether this post belongs in my other, Free Speech Emergency blog, or here. However, the issue concerns the actions of a private hotel in either breach or misunderstanding of a private contract to host a conference on homosexuality in Latvia, not the actions of state authorities. From a libertarian position, I am uncomfortable with forcing people to tolerate or interact with others. Breaching a contract or altering the rules in the middle of the game doesn't sit well either. The whole event just reflects the incompetence, provincialism and primitive prejudices of Latvian society and its "business" community.  It comes against the background of the removal of the head of the "For A Good Latvia" (Par Labu Latviju) movement, a businessman who said he didn't object to gay marriage, at the instigation of the closely-linked cryptofascist, openly homophobic Latvia's First Party/Latvia's Way (LPP/LC in Latvian)
Whatever the reasons for sudden removal of the Riga Pride 2009 photo exhibit, the Hotel Alberts has certainly removed itself from any list of  gay-tolerant establishments in Latvia (anyone keeping count can now lower the other hand...).  That probably doesn't matter and the managers of Alberts probably don't give a flying f**k.  For reasons I mentioned, I didn't attend the conference, nor did I see the photo exhibit, but I think we now have a snapshot of Latvia, purportedly a democratic European Union member country, in June 2010, starting the second decade of the 21st century.

Tuesday, May 04, 2010

20 years of freedom and they put you on the sh*t list

Latvia celebrates 20 years since its formal declaration of renewed independence on May 4, 1990. That was a warm, sunny, almost summer day with foliage in full bloom -- at least judging from the videos of those events. I am writing on a grey, chilly day with buds just bursting. Eerily, the weather sums up what most of the population feel about their country. According to one poll, 70 % of Latvians aren't celebrating this anniversary. 
One reason could be that people don't like the idea of two independence days -- November 18, 1918, when the Republic of Latvia was first founded, and the second May 4 date, which has been the subject of argument -- some of it hair-splitting by ultranationalists --over the past 20 years. For some, the "4th of May republic"  has become a curse word, a symbol of how part of the old Soviet nomenklatura switched side but didn't change their basic nature. There is some truth to that, as I will discuss later.
Whatever one calls it, 20 years later, the processes that were already in motion on May 4, 1990, and were historically crystallized by the vote of the then Supreme Council, have led to a state of affairs that is a great disappointment, if not a complete betrayal of most of what the enthusiastic crowds of that May afternoon were hoping for. This is the second reason there is little enthusiasm for May 4. 
20 years is roughly one generation, 20 years is the time it takes to get a theoretically very good education -- 12 years, plus four years of university, plus some kind of post-graduate education or training.  20 years is the time it took a large society like the US to move from the conformity of the late 1940s to the social and political upheavals of the 1960s. 20 years is the time it took a war-ravaged nation (Latvia) that had to fight a war of independence to rise to become a reasonably successful, though authoritarian European state in 1938, the last full year of peace. 
Certainly much has happened in 20 years, or more precisely, almost 19 years since Latvia actually regained its independence with the disintegration of the Soviet Union in August, 1991. The "face" of Riga has changed and it looks like almost any European city. The market economy has brought in goods and services and abundance unheard of in the crumbling planned economy of 1990. There have been incomparable opportunities for travel, education and enterprise for the population, especially for young people growing up since 1990/91.
Latvia is also a democratic country that largely respects the freedom of speech and the press (the idiotic activities of the Security Police against an economics lecturer and the attempts by the Riga authorities at restricting gatherings on March 16 and LBGT Pride events notwithstanding). So far, it seems, so good...
But things are far from as good as they should be or could have been. Unlike 1938, Latvia is at the bottom, not the top of European statistics. Unemployment hovers at over 20 %, salaries are falling, an unknown, but very large number of people have emigrated (if they had stayed on the labor market, the unemployment statistics would be much greater, even adjusted for those listed as unemployed in Latvia but actually working abroad but not reporting it in order to collect unemployment benefit or simply because they don't care). Around 90 % of the population, depending how one asks the question, distrust political institutions and politicians. The reputation of the democratically elected parliament, the Saeima,  hit a new low when many parliamentarians simply lied to the public about how they would vote on the re-confirmation of Prosecutor-General Jānis Maizitis (the post remains vacant). The Saeima pushed its rat-like reputation even lower when it refused to let Dainis Īvans, the first leader of the Latvian Popular Front  (Tautas Fronte), the movement that set the move to independence in motion, address the special session of the Saeima on May 4. 
The past 20 years have seen a series of often depraved corruption scandals that have resulted in very little in the way of prosecution and punishment. The criminal process against Aleksandrs Lavents, one of the bankers responsible for the collapse of the largely fraudulent Banka Baltija in 1995, was dragged out so long that the years of jail time (and endless illness) practically amounted to sufficient punishment (time served) when Lavents was finally convicted. A couple of years later, the wreck of a man moaning on his prison hospital stretcher was looking more than chipper at such Russian-speaking gliterati events as the "New Wave" music festival in Jūrmala. 
Aivars Lembergs, the almost perpetual mayor of Ventspils who has amassed several centuries of wealth (assuming he saved every santim of his mayor's salary) and faces compelling evidence of criminal corruption and embezzlement, remains a popular politician who spent a few months in pre-trial jail. 
Political parties seem to be universally involved in corruption and influence peddling. Politicians Ainārs Šlesers and Andris Šķēle, the partners of a AŠ2 election-alliance gimmick, were behind the attempt to buy votes on the Jūrmala city council. They remain unscathed, despite recordings of Škēle asking "who is the bigger cretin"  when presented with choices for mayor of the Riga suburb.
Nothing is sacred -- it appears that the Children's Hospital in Riga was used as a conduit for (and victim of) a corruption scheme siphoning funds from renovations and construction at health care facilities. This happened at the same time as a non-governmental organization Lielie (The Big Guys) was raising funds for improving the Children's Hospital to partly compensate drastic funding cuts for medical care.
Just after joining the European Union (EU), Latvia rushed headlong into overheating its economy with reckless borrowing and "pedal to the metal" politics against all better advice. Then everything crashed and, as things now look, nothing will recover for many years. 
Part of the reason for what happened is, indeed, Soviet legacy. People were conditioned by the system to see the state and state institutions as the enemy. Pilfering from the state was not seen as a crime and, indeed, the only form of "resistance" that could be undertaken with relative impunity compared to over political action. One could get away with stealing cloth from the factory, but not with running a Latvian flag up the factory flagpole (at least until the late 1980s). When the early independent Latvian governments faltered or failed to meet exaggerated expectations (pumping huge government subsidies to everything, a very "Soviet" expectation), the reaction -- pilferage, low level corruption, tax evasion -- was already known by force of habit. I remember saying, but maybe not writing (unless I go through a lot of old floppy disks), that changing the flag on the flagpole would not change the nature of the society that had been formed under the previous Soviet flag. That proved, to some extent, to be true. Certainly Soviet nomenklaturshik thinking unconsciously carried over into the way early (and even later) governments behaved, down to African-dictator-style motorcades with flashing blue lights in order to transport my favorite imaginary Minister of Canine Welfare (Suņu labturības ministrs) the few blocks from Government House to the Saeima in Riga.
As emigration takes a significant part of the "best and brightest", it seems that the the number of lumpenized individuals (the term urla, mostly applied to Russians but fitting many Latvians as well, is often applied).  Perhaps it is because I work near the Riga Central railway station, but it seems that the number of urlas is increasing, as well as the number of shit-faced staggering drunks one sees at "inappropriate" times of the day. It also seems that beggary and the public displays of misery associated with it are on the rise. Even among "ordinary folk" there seem to be more worn, desperate, despondent looking faces. This is -- and it is a subjective view-- a nation on the downslope, down and out and no place to go.
Maybe in another 20 years Latvia will have clawed its way to something close to a prosperous, democratic Western society. At the moment, one shouldn't bet on it, because in the past 20 years, the botched and missed opportunities outnumber the often visible surface accomplishments. As for me, I am doing the very contemporary 2010 Latvian thing of working on yet another Plan B, should the need arise... 

Friday, April 02, 2010

Are there crypto-minarchists at the World Bank?

I didn’t know there were crypo-minarchists in the recent World Bank mission to Latvia and I am still not sure if  I am being unfair in saying so.  However, their latest recommendations (leaked to the LETA news agency, where I work) seem to point in that direction.
First, my definition of a minarchy is government that has three functions -- defense, police and the courts (to the extent that these functions cannot be otherwise privatized). In a minarchy,  there is very low government spending and extremely low taxation.  Market forces (buying and selling) and social cooperation (voluntary pooling or allocation of resources) dispose of most of the gross domestic product of such a society.
I have written before that the drastic government spending cuts imposed on Latvia by international lenders are pushing the country headlong toward a kind of twisted and rushed minarchy. Some of the World Bank proposals seem in line with this.
What worries me the most is are the proposals to drastically reduce so-called budget-financed studies at Latvian universities and, essentially, make most students (and their parents) pay tuition. In the long term, this may be a viable solution, but not together with the massive unemployment and drastic salary cuts that Latvia is experiencing and will continue to experience over the next (my estimate) three to five years. With plummeting living standards, there will simply be a drop in the number of those who can afford higher education and, for some, the lack of opportunity, combined with existing doubts about the quality of Latvian higher education, will be a powerful argument for student-aged people, if not whole families, to emigrate.
Reducing the capacity of a nation to educate its population amounts to a form of external futuricide -- the killing of the future.  The futuricidal aspects of the World Bank recommendations read as follows:
-- Reduce the number of budget-financed places by 50% in all higher education institutions (including the institutions under ministries other than the MOES--Ministry of Education and Science).
-- Reduce the level of budget financing for each student place by 50%, and make up the difference with 50% co-payments by students in budget-financed places. 
There certainly will be some savings, but the end result, at the end of the decade, will be a dumber, somewhat youth-depopulated Latvia.
Like all of the defacto head-over-heels rush to minarchy plans imposed and proposed by the international lender, none says a word about how any of this will lead to economic recovery in Latvia. Instead, all this points to an increasing reduction of domestic purchasing power (ensuring continued stagnation) and reduced capacity to export (emigration of skilled labor and reduction of future skills needed for export industries and new enterprises).  At the same time, what I could call returnless taxes will stay steady or increase as income cuts, emigration, and economically logical tax avoidance and evasion degrade the tax base.
In making private investments, we all look to a return on investment and get out when the return diminishes. We are forced to pay taxes and should at least think about the options when the return (public services, health care, education, pensions) starts to deteriorate. In Latvia, the deterioration is already severe and will get worse with no credible end in site. This is not to say that the World Bank’s suggestions that public services (reducing unnecessary hospital beds, etc.) aren’t reasonable. However, bureaucracy and inefficiency are endemic in Latvian public administration and I don’t give much credibility to predictions that this will change. I just spoke to a woman whose daughter turned 18 (which “pops up” in the electronic Register of Inhabitants) and should be taken off the list of dependents at the State Revenue Service (which checks with the Register of Inhabitants to avoid taxing the dead and emigrated), but she was asked to bring a physical notice of her daughter’s legal maturity from one state agency to the other.  Maybe the Latvian state administration can be fiscally bashed into changing, but the side effects could be worse than the symptoms.
Latvia still faces budget cuts of around LVL 1 billion (about USD 2 billion ) over the next two years (and that may not be the end of it). The country’s government hallucinates that it will be able to adopt the euro in 2014 (try 2020 instead, if the PIGS won’t have torn the single currency to tatters by then). Not a santim of those LVL 1 billion in savings will go back into the economy, there will be no tax cuts, few new businesses will form, another 100 000 or more will emigrate as the rest of Europe recovers. Higher education will be unaffordable, with all that implies (the World Bank also wants student loans tightened and reduced).
Worse yet, it is too late for an alternative scenario of letting the Latvian currency float and carefully printing enough of it so that domestic wages and purchasing power at local prices are not savaged. That is water under the bridge...
There may be a path to making Latvia or any other country into a prosperous minarchy, but it will take years, if not decades of slow tax cuts and reduction of government, strong economic growth, and a society educated enough to govern itself largely through voluntary, cooperative institutions. The World Bank’s proposals are a form of pernicious, destructive crypto-minarchism.

Sunday, March 28, 2010

Daimler bribed Riga City Council, Corruption Fighters Totally Clueless

The German company Daimler has paid bribes to the Riga City Council for ensuring that Mercedes busses would be purchased for the public transport agency Rigas Satiksme, according to an FBI investigation in the US. The payments in Latvia are apparently part of a wide ranging bribery campaign in a number of countries.
At least two Latvian television stations -- TV3  in its "Nothing Personal" (Nekā personīgi) and the LNT news -- disclosed that at least three payments of several hundred thousand lats were made to political parties sitting on the Riga City Council in the late 1990s and after the turn of the century. "Nothing Personal" interviewed the head of the Bureau to Combat and Prevent Corruption (Latvian acronym - KNAB) who was completely clueless about the matter. Wasn't he told? Weren't there any prior signals from the FBI? How can an American law enforcement agency know more about corruption in Latvia than KNAB, the institution specifically charged with investigating (not interstate crime, not kidnapping, not drug smugglers, not threats to national security etc. like the American FBI) nothing else but corruption.
Failed state or simply Fucked State?
And that is not all. It now seems that hundreds of valid-looking Latvian driver's licenses, that were confiscated by the police from Latvian drivers for various reasons (drunk driving, serious traffic violations) have been found to have come into the hands of criminal gangs and used for various frauds and scams, including renting cars and then selling them abroad. One case was discovered when a stranger attempted to buy a mobile phone on a leasing arrangement. He presented the confiscated driver's license of an acquaintance of the phone salesman refused the transaction.
It is not known how hundreds of confiscated driver's licenses (which normally should either be destroyed, then re-issued at the end of the suspension, or kept in a safe) made their way into the hands of criminal gangs, but it is a logical assumption that someone in the police sold the licenses to criminals knowing what they would be used for, and no one knew, or more likely, someone covered up their disappearance.
Failed state or simply Depraved State?

Monday, March 22, 2010

A happy turn in Ziggy's grave? Not really...

With some glaring mistakes corrected.

Sorry about the flippant and irreverant reference to a true Latvian national hero, the nation's first foreign minister, Zigfrīds Anna Meierovics, who earned de facto and de jure recognition for the young and beleaguered Republic of Latvia. Sarmite Elerte, the former editor-in-chief of Diena, the national daily sold last year to the British Rowland family, has started an organization called the Meierovics' Society for Progressive Change, gathering many Latvian intellectuals and semi-celebrities. The aims are well-meaning and, indeed, Zigfrīds (Ziggy starts to sound wrong) can turn to the other side in his resting place with a little more confidence that all is not lost and he is at least well remembered.
However, this looks like yet another society for the betterment of all that is somewhat removed from the realities and depravity of political life in Latvia. Even as the ink was drying on the new organization's founding documents, Riga mayor Nils Ušakovs was telling reporters that around LVL 1 million had been embezzled or otherwise vanished from the accounts of the bankrupt municipally-owned health insurer RSK. Par for the course in Latvia, where stealing from the Children's Hospital came as naturally as breathing for some folks.
Of course, there are plenty of reasons (if the above doesn't suffice) for other kinds of turning in the grave, should anyone care to... Current ministers, instead of heros, have a talent for being buffoons, such as outgoing Minister of Justice (not Interior, my mistake) Mareks Segliņš, who handed in his resignation from the post of Minister of Heath. Prime Minister Valdis Dombrovskis kindly asked Mareks to get it together and resubmit a proper resignation. It is not known whether Minister of Health Baiba Rozentāle resigned from the Justice Ministry. Four ministers, all from the Peoples' Party (Tautas Partija/TP) have left the government after the party leader Andris Šķēle ordered his people into opposition.
Dombrovskis of the New Era (Jaunais Laiks/JL) is holding together a minority government that may bumble along until the elections. Whoever has the misfortune of winning that contest is going to face cutting at least another LVL 500 million from the state budget, something that is unlikely to happen without drastic cuts in pensions and other already meager entitlements.
Unfortunately, despite whatever well-meaning organizations with nice people that are set up, the country has been pushed past a number of tipping points, and I see no other possible future for Latvia except as a stagnant, corrupt, hapless and hopeless, increasingly depopulated territory on the margins of the European Union. At least for the rest of the decade. For that, we have the political elite and our tolerance of it to thank.

Sunday, February 21, 2010

A tentative green shoot of resistance -4.ATA

The riot of January 13, 2009 turned Latvia's then Prime Minister Ivars Godmanis into a stone-faced figure on morning television proclaiming that we were waking up in " a different Latvia" (hello??). President Valdis Zatlers shortly thereafter told the Saeima to basically get its ass in gear or he would consider dissolving them. Nothing of the kind happened. A non-violent "Penguin" movement, based on Godmanis' expression that "penguins huddle together in the cold" has, unfortunately not amounted to very much.
I have written before that while "riot" seems to be one of the few languages that the Latvian ruling elite pays attention to, ultimately street violence is no solution (except for a brief feeling of -- the fuckers got what they had coming). Therefore it is tentative encouraging that a cyberactivist movement, the Fourth Awakening People's Army (Ceturtās Atmodas Tautas Armija/4.ATA) has appeared and taken responsibility for copying the database of the Latvian State Revenue Service (VID). What the 4.ATA has done is arguably illegal and raises some issues about publishing the identities of persons who filed tax returns and other information through the, as it turned out, leaking sieve of the VID's Electronic Declaration System (EDS).
However, compared to the waste of taxpayer funds as well as tax fraud that may be uncovered through analyzing this information, the "crime" of copying an inadvertently "open" data base pales by comparison. For now, it looks like 4.ATA is a viable, extraparliamentary resistance group that Latvians looking to finally implement decent, honest and efficient government should support.
4.ATA has declared that it is against all corrupt politicians and will make an effort to expose compromising information during the present election year. It hopes that this information will be a kind of "detonator" for mass action to reclaim the democratic system in Latvia. One can only hope that that will be so. The first action could be a mass refusal to pay public transport fares on a certain day after 4.ATA disclosed disproportionately high salaries and bonuses for top executives at Rīgas Satiksme, the Riga transport agency. Fares for buses, trolley buses and streetcars have been raised and Rīgas Satiksme has proposed limiting the number of rides one can take on a full-fare monthly transport card.
4.ATA has opened a Twitter account @neo4ata where a person calling him/herself neo has been tweeting, mostly in Latvian. Neo recently said he/she was coming to Latvia next week. 4. ATA has identified itself as a small group of Latvian IT specialists in Britain and Ireland. If neo enters from a non-Schengen country, there is some risk his/her passport data could be screened.