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).
or
-- 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.

6 comments:

Anonymous said...

Not the world bank, nor other IFO is to be blamed for inefficiency of latvian public administration. Their proposal is great. Local PAs willingness to distort any reasonable idea is not the factor they should care about. Otherwise it leads to endless moral hazards.

Wannabe Sorosieši said...

Please dear mr/ms anonymous - spell out the moral hazard argument. Those two words have become a bizarre incantation that justifies much thoughtless cutting. Please cite some specific research that supports moral hazard being a factor.

Anonymous said...

Obviously, before judging the recommendations of the IMF, you should be made aware of what the actual level of government support of higher education is and how it compares to other countries that are comparable.

Everyone is well aware of the IMF ideology, but to make your argument stick, you should make the effort to provide us know-nothing readers with facts and figures.

Marc

Anonymous said...

Hi Juris, I am a teacher from Spain that was teaching in Riga for a year and a half. I am still interested in what´s going on over there.

I just wanted to congratulate you for your blog, with an accurate and realistic point of view. It is my main source of information about latvian stuff.

Back in 2006 everyone thought I was jealous or a party spoiler for pointing out that not even in Norway I saw so many BMWs driven by teens... I have been for more than a year amazed at how people took credits and lived several times over the life they could really afford.

And even now when the situation is catastrophic, I don´t perceive an ounce of self-criticism in latvians (as I do see in other nations)... It gives me the impression that when the economy recovers, they will make the same mistakes all over again.

Thanks again for your cool blog :)

Anonymous said...

This is not merely a Latvian or Baltic problem. They should be doing the same thing in Finland, the Nordic countries and the EU as concerns university funding.

I say this as a researcher and as a former student of several universities who was duped into spending (the State's) money on completely worthless (save for a general studies education which I coincidentally could have studied myself to in my freetime) subjects which do not translate into real jobs (for the former students).

We have myriads of programmes (women's studies, genus studies, conflict studies, ..... studies, Political Science, Sociology, Social Psychology, environmental governance, Journalism, climate change studies, Marxist societal analysis, etc.) which are a horrendous waste of public education funding, both for education and research, and unwitting students are being told that these programmes will turn them into esssential subject experts!

They are in actuality becoming self-important sophists who cite study after study and have lots of information that hardly anyone needs.

The fact is that the only employment that is being secured by many study programmes is that of the subject teachers and professors themselves!

And that is in my book an outright criminal use of public funds and public trust!

So what are these people to do then?

Well, that depends on what society needs (both short-term and long-term). One good thought exercise is to see if you can find your intended occupation one to two thousands years back in time.

It may have had a different name or it may have been part of another occupation, but chances are that it is something that humans really need (even Theology passes this test).

Obviously there will be new tasks that have no ancient counterpart, but the key factor is that it must answer a real societal requirement and not just vague illusions caused by academic or professional self-importance. That may sound harsh, but it is the reality we have to face, particular in these times.

Younger people (and the myriads of older people who sooner or later will end up having to complement their ".....studies") need to return to planet Earth and start gaining experience and education in building, plumbing, cooking, personal services, handicrafts, engineeing, medicine, accounting, business services, entrepreneurship, spiritual services (pastor, rabbi, shaman), programming, machine repair, nursing, city planning, vessel captaining, agriculture, etc...

Luckily I complemented my "studies" with Technology, Law, Economics and languages in addition to having a long family history of entrepreneurship. But what about those who simply attended the programmes proper?

You'll find most of them unemployed, working completely unrelated jobs or trying to sell "studies" and 2-year "masters" programmes in order to ensure their own employment, even if they end up having to lie to potential students to bring in the revenue.

Cut away, I say! And I hope these cutbacks arrive in Finland and the rest of the EU soon!

Gunnar

Anonymous said...

This is not merely a Latvian or Baltic problem. They should be doing the same thing in Finland, the Nordic countries and the EU as concerns university funding.

I say this as a researcher and as a former student of several universities who was duped into spending (the State's) money on completely worthless (save for a general studies education which I coincidentally could have studied myself to in my freetime) subjects which do not translate into real jobs (for the former students).

We have myriads of programmes (women's studies, genus studies, conflict studies, ..... studies, Political Science, Sociology, Social Psychology, environmental governance, Journalism, climate change studies, Marxist societal analysis, etc.) which are a horrendous waste of public education funding, both for education and research, and unwitting students are being told that these programmes will turn them into esssential subject experts!

They are in actuality becoming self-important sophists who cite study after study and have lots of information that hardly anyone needs.

The fact is that the only employment that is being secured by many study programmes is that of the subject teachers and professors themselves!

And that is in my book an outright criminal use of public funds and public trust!

So what are these people to do then?

Well, that depends on what society needs (both short-term and long-term). One good thought exercise is to see if you can find your intended occupation one to two thousands years back in time.

It may have had a different name or it may have been part of another occupation, but chances are that it is something that humans really need (even Theology passes this test).

Obviously there will be new tasks that have no ancient counterpart, but the key factor is that it must answer a real societal requirement and not just vague illusions caused by academic or professional self-importance. That may sound harsh, but it is the reality we have to face, particular in these times.

Younger people (and the myriads of older people who sooner or later will end up having to complement their ".....studies") need to return to planet Earth and start gaining experience and education in building, plumbing, cooking, personal services, handicrafts, engineeing, medicine, accounting, business services, entrepreneurship, spiritual services (pastor, rabbi, shaman), programming, machine repair, nursing, city planning, vessel captaining, agriculture, etc...

Luckily I complemented my "studies" with Technology, Law, Economics and languages in addition to having a long family history of entrepreneurship. But what about those who simply attended the programmes proper?

You'll find most of them unemployed, working completely unrelated jobs or trying to sell "studies" and 2-year "masters" programmes in order to ensure their own employment, even if they end up having to lie to potential students to bring in the revenue.

Cut away, I say! And I hope these cutbacks arrive in Finland and the rest of the EU soon!

Gunnar