What has Latvia's transition turned into? - a comment on political scientist Iveta Kažoka's views

A lot of buzz has been generated among the Latvian twitterati by an essay by political scientist Iveta Kažoka in her Latvian language blog on the website www.politika.lv . Kažoka contends that Latvia is no longer “a society in transition” (from totalitarian socialism to...whatever?), but something else, showing the seeds and potential for a better society. To be sure, she asserts, there are significant hinderances to such development, but, nonetheless, she is an optimist, if only Latvians (or Latvia's inhabitants as a whole) were to change their mentality somewhat.

Kažoka writes, that after attending a conference in Lithuania and getting around a bit elsewhere, she can't accept that the “transition society” label applies to Latvia any more:

Despite that 10, 6 or 4 years ago, labeling Latvia as a transitional society was almost automatic. It seems, intuitively, that in recent years the use of this term has gradually faded. Today, when identifying ourselves to an international audience, a more frequently heard description is “new European Union member state” or “new democracy”

It seems to me that this change is not simply one of description and a change of labels. It is the start of new thinking, a new paradigm about our society, a new approach to life and development. From a comparatively blind, unreflective construction of a desirable model of governance and the copying of discourse to modeling governance after one's own image and likeness (with individual borrowings from those societies that are most successful in some area). To my mind, this is the most significant change.

Kažoka goes on to say that one characteristic of the change she perceives is that Latvians no longer view other model societies uncritically, they see the flaws in such places as Germany, Switzerland and Scandinavia. The political scientist believes this can lead to a desire to do better in our own way, rather than a “cynical relativism” that says that if the Scandinavians have not fully eliminated corruption, it cannot be done in Latvia.

Kažoka lists what she believes are the good qualities of Latvian society, including:

-the ability to cope, adapt, change, search for and find compromises

-a pragmatic ability to learn from their mistakes, having self-esteem, involvement as values

-education as a value

-a growing intolerance for superficial glamour, Nordic modesty.

She then discusses three negative characteristics that Latvians have to overcome in order to advance along the path that she thinks is opening up. She calls them “three reflexes of helplessness:.

-a low level of mutual trust that the political scientist and commentator describes as “tragic”

-a culture of self-depreciating lamentation and “loser-ism”

-stagnant conservatism and an inability to think outside the box

In a rather upbeat ending to her post (perhaps my summary doesn't do it justice, Latvian readers or those who wish to amuse themselves with Google translate can check it out here) Kažoka writes:

I have not hidden the fact in earlier posts that I am skeptical about traditional development planning methods. I see some sense in them, but I don't believe that they are a decisive factor in the faster or slower development of a society. In my opinion, more important processes take place in people's heads, in their perception of the world, because it it is these that either encourage a person to action in the hope of some achievements, or put a brake on doing anything at all. In very general terms, things will be such as is our attitude.

No one can say for certain what the world will look like in 20 years. At the same time, it is clear that the keys to success for a society in this century are new technologies, the ability to learn and cooperate, and inner freedom for creativity. Let us take this into account and do everything so that people in Latvia will have these keys. In my opinion, Latvia as a society presently has the preconditions to become a society where people want to live (rather than leave at the very first chance) if we deprogram ourselves from three learned reflexes of helplessness (mistrust, “loser-ism” and traditionalism) we can be at the very forefront of change.

The Latvian saying “from your mouth to God's ear” is my first reaction to Kažoka's post. But in more critical terms, I would ask – does this analysis and possible future scenario fit the data? OK, I am not a social researcher, Iveta is probably better trained on such matters. The Eurobarometer survey she mentioned to me in a Twitter exchange shows that 78% of Latvians don't trust the government, 89% don't trust political parties and 82% don't trust the parliament. If this isn't dismal, perhaps it is better not to ever see dismal...

The other data that I look at are emigration and is corollary, depopulation. The region of Latgale has lost more than a fifth of its population (21.1%), even Vidzeme, often regarded as a kind of Latvian heartland, is down 17.5%. Among Latvia's cities, Daugavpils has lost 19.3% of its population since 2000, Rezekne is down 18,1% and even the capital Riga has lost 14,2% of its inhabitants.

Admittedly a lagging indicator, figures on the impoverishment of the nation from 2010 show that 46% of the Latvian population would be below the poverty line but for various kinds of social welfare payments. That could be considered a sign that the welfare system works in the country, but at the same time, that people are unable to earn a living wage in Latvia, hence the continuing emigration. Figures on household disposable income show it had fallen by 20% in 2010 compared to 2008, the last year before the economic crisis struck with full force.

There is also a recent study by University of Latvia researchers showing that the alleged Latvian love of work is a myth – the countryside population in many places has sunk into a culture of existing at a subsistence level on welfare and other transfer payments or doing temporary subsidized day labor. A culture of heavy drinking and alcoholism has also become endemic, with the result that employers – farmers and small businesses – cannot find suitable workers. The boozers and welfare dependents prefer their lifestyle to getting a steady job with taxes and social fees paid.

Another recently published “positive” figure is that the number of youth unemployed age 15 to 24 has decreased at the end of 2011 by over 7 800 from the end of 2010. Somehow I don't think these people all got jobs in Latvia. In fact, a fair guess is that most of them emigrated and only a few found work or started their own enterprise in Latvia.

Unfortunately, I don't think the data I see fits Kažoka's conditional optimism, nor, for that matter, that her conditional optimism is based on the data (unless she, whose day job is political analyses, facts, figures etc., has seen other data sets that I haven't seen).

As things stand, the paradigm for Latvia is stagnation (with some bright islands of progress in the economy, like the IT start-ups that gathered at the recent TechCrunch Baltics) and continued emigration simply because it is so easy to find places that are better governed than Latvia and where work is better paid and people better treated, in general, than here. That just comes from the facts and figures, it has nothing to do with whether I am a pessimist or optimist or cheering for Latvia to do better. In a race where your favorite horse is almost dead, it is this fact, not the cheering, that matters. 

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.

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 "Pietiek.com" (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 "pietiek.com"  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.
"Pietiek.com" 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. "Pietiek.com" 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.

It ain't just me, babe...

Some people think I am too depressive and pessimistic writing that Latvia has basically destroyed all trust in state institutions and is heading for some form of failed nightwatchman government pretending to rule an increasingly alienated society drifting, at best, into some form of cooperative anarchy (organizing replacements of failed public services privately or by volunteer activity).
In fact, I was gently criticized for my pessimism by a Latvian academic (former "exile" Latvian) I met while grocery shopping.
Now, a prominent businessman/architect in Liepaja has said much the same in an interview with my former employer, the business newspaper Dienas bizness. Uldis Pīlēns says the way that the government has tried to react to the crisis has essentially destroyed public trust in fundamental democratic values -- the so-called legal reliance on getting a just return for taxes and social fees paid. Instead, pensions have been reduced, working pensioners driven from their jobs and teachers reduced to working for less pay educating future generations than Latvian janitors (sētnieki) ar paid for sweeping the streets with a broom made of twigs.
He also says that the behavior of the government in leaping to save the foundering Parex Bank with the first international loans it received, then acting chaotically to appear to cut the budget to get the next tranche (pensions won't be touched, then pensions are cut) has badly damaged Latvia's international image in the eyes of potential investors. A level of unemployment has been created that it will take 6 or 7 years to recover from. So Pīlēns, too, is saying that most of the next decade in Latvia is lost due to the cumulative mistakes and incompetance of several Latvian governments.

The 4.8 % solution and fish with socks?

Pauls Raudseps, a senior commentator specializing in economic matters with Latvia’s leading daily Diena and I got into a discussion about whether Latvia could recover from its present economic crash. It started on a new Latvian television talk show and continued afterwards. Both on air and later, Pauls pointed to a 4.8 % rise in Latvia’s industrial production in April from March. His argument was that this was the beginning of a turnaround in the Latvian economy that would lead to the real start of an export-led economic recovery in six months.

Pauls also said that he believed Swedish economist Anders Åslund’ s prediction that East European economies (including Latvia?) would recover faster than the West, thereby precluding a scenario where recovery in the West leads to mass labor emigration (based on widespread and rational “no future” expectations) and permanent stagnation in Latvia.

I have looked at what I believe are the same statistics that Pauls uses. The April month-on-month rise seems mainly to have come from increased production of clothing (+14.6 %) pharmaceuticals (+ 11.6 %), and chemicals (+9.7 %). These are seasonally adjusted figures. In laymen’s terms, a mathematical formula has been applied to even out surges of certain kinds of production related to the seasons – wood is easier to harvest and process when the forests are dry and the access roads are clear, etc. The other statistical comparison is adjusted for working days (holidays on workdays, etc.) on a year-to-year (April 2009 compared to April 2008) basis, which showed production plummeting by 16.9 % from April 2008, and by 18.7 % when manufacturing alone is measured. So no glimmers of hope there.

The April statistics are not broken down proportionately, but there is a proportional breakdown of exports, which Pauls and others think should be the motor re-igniting the Latvia economy. I don't disagree-- in theory. These figures are disastrous. Exports are down 30.9 % from April, 2008 and have plummeted in all of the largest export groups. Food products, comprising 18.8 % of total exports, fell 6.8 %, forest industry exports (15.7 % of total) plunged 40.7 % and textiles (including clothing) at 5.5 % of the total were dowm 31.1 %. Only knitted goods, which include socks, I suppose, were up 0.9 %, while a fast rising export (except for re-exported fuels) was fish, up 16 % and just behind pharmaceuticals, up 19%.

The thing is that fresh, frozen and smoked fish comprise only 1.7 % of Latvia’ s exports, about the same as “socks”, at 1.8 %. Even the seemingly rising rocket of pharmaceuticals makes up 5.6 % of total exports. I also suspect that a large percentage of pharmaceutical exports are contract-manufactured pills made by Grindex and other companies for a market with relatively steady demand. Finally, in the month of April alone, on a working days adjusted basis, the production of textiles as a whole (a larger category than knitted goods), was down 59.8 % from the year before.

I find it hard to see how the 4.8 % uptick in industrial production and seeming higher exports of fish and socks (and pills) are serious indicators of an upturn and the green shoots of recovery. It still looks to me like the Latvian economy is crashing. The accelerants of the crash, such as rapidly diminishing domestic purchasing power, a total lack of affordable financing for new businesses (or any business), deflation and an uncertain tax environment (several contradictory plans in one day and tax hikes still looming on the horizon) and the certainty of increased workforce emigration at first opportunity, are all there. The massive cuts in public spending and the even harsher cuts we can expect i 2010 and 2011 will increase unemployment and further cut or "export" the purchasing power of Latvians (with only some showing up in national accounts as expatriate labor remittances).

At some point things will “bottom out” in a kind of prolonged stagnation for the better part of the next decade. It doesn’t look like there is more to hope for than that. Any hopes should be placed on how the flows of repatriated earnings from up to 500 000 Latvians working abroad by 2015 (my wild guess) will be spread in the local economy.

Latvian parliament stays on

President Valdis Zatlers spoke to the Latvian nation but failed to dismiss the Saeima (parliament) as he threatened to do unless legislation changing the constitution to allow dissolving the Saeima at the voters' initiative  and other legislation was passed by March 31.

Zatlers gave the "ultimatum" to the  100-member parliament on January 14, the day after a peaceful anti-government rally was followed by rioting. 

The president listed a series of measures taken by the Saeima hitherto that, as I read it, basically said that doing a two-thirds-assed (as opposed to half-assed) job was enough, together with the new government of fall-guy Valdis Dombrovskis, the economic crisis, the talks with the IMF, blah blah - was reason to give the Saeima another chance.

The reaction in internet comments has been pretty harsh. Many are calling Zatlers a wimp. 

My take -- dismissing the Saeima would have merely paved the way for a Chinese-fire-drill-at-monkey house style election. The People's Party (Tautas Partija) would probably have taken a bad hit, but populists, crazies and the politically inexperienced would probably have been elected in a hasty and desperate campaign, left with a nearly impossible task of forming a viable government.

At the same time, it is obvious that no election can prevent Latvia's rapid slide toward economic collapse and state bankruptcy.

Some positive angles possible?

So is there a way out of the present crisis in Latvia? The question came up at a reunion of sorts of the people who used to work for the Latvian Service of Radio Sweden. It has been 20 years since broadcasts in the Baltic languages were started, but they were discontinued a few years ago. The Baltic drama, as far as the Swedes were concerned, was over.
Actually, the seeds of another drama were being sowed in the 2004 to 2007 period -- a credit-fueled boom, the highest growth rate in the EU, salaries vastly outrunning productivity, astronomical real-estate prices. It was for my descriptions of the subsequent economic crisis in this blog that I got drawn into a rather intense discussion about why I was not “positive” about something.
Superficially, the discussion seemed to follow the same pattern as a panel discussion in Riga where I ended up against Eriks Stendzenieks, whose ad agency was hired to conduct a “positiveness” campaign ahead of the 2006 elections to the Saeima in Latvia and Viesturs Dule, an former TV entertainer turned media critic. However, my critic and opponent wasn’t a PR/media professional, but someone I have known in the Latvian community outside of Latvia for decades. She worked as a freelance contributor to the Latvian Service after I left in 1995 and moved (more or less) to Latvia.
As I said during the discussions in Latvia, the job of a journalist (and, by extension, of a blogger) is to present facts accurately. In blog it is not only permissible, but desirable to have a point of view, to exhibit attitude or opinion. But even that must be derived from the facts.
Anyway -- are there hard facts or statistics that indicate Latvia will avoid an economic collapse in a few months? Presently, not; things look pretty bad. Retail sales are seen plunging up to 30 %, foreign trade volume is down, unemployment rising rapidly and the number of job vacancies collapsing (this is not a creative destruction scenario where there is a lag between the “sunset” of one industrial sector and the creation of a new one).
OK, if I can’t be of a different mind based on present facts and figure, perhaps there are other ways to seek solace and to at least attempt to dodge the charges of doom-mongering that I heard the other night from my opponent in the informal discussion.
Perhaps one can turn to history. Hundreds of thousands of Latvians fled deep inside Russia during World War I, fearing the invading Germans. There was considerable war damage to Latvia’s infrastructiure and a large part of industry, linked to the Russian Empire, never recovered after the war. Nonetheless, the newly-founded country got back on its feet. Much of the recovery was driven by patriotism and the exhileration of building a new country.
Still further back in history, there were several times of devastating war and plague, all of which the Latvian nation somehow survived.
One could object that the period of post-1991 independence was followed by an incredible spectacle of corruption and incompetence, but certainly nothing that had not been seen and, in many cases, overcome in other times and places. So we can derive some hope or odds (in a probability sense) from this.
Another possibility is that predictions of a mass labor exodus as soon as Europe recovers could be exaggerated. A recent survey published in Diena, the Latvian national daily, found that 56.8 % of those questioned said they would not emigrate and 22.8 % said they had not thought of it, but might consider it. Only 3.9 % said they would definitely leave.
This poll addresses the issue raised by economist/blogger Edward Hugh, who foresees a worst-case scenario in which Europe recovers first and drains Latvia of skilled labor, leaving a nation of a shrinking second-rate workforce and a rising number of pensioners and other “consumers” of the social budget. That would leave Latvia as a stagnating backwater on the northeastern edge of Europe. Maybe it won’t happen.
It also cannot be excluded that another spontaneous mass movement, like the so-called Awakening of the late 1980s appears. There has been a false dawn in the so-called Umbrella Movement (after a antii-government rally in Riga in December, 2008 that took place in a rain and snow storm) and the so-called Penguin Movement is still to small to be considered a serious force. Nonetheless, nothing can be excluded, although future mass rallies are likely to be tainted with violence (after January 13). Still, the chance of a mass protest movement tinged with a threat of violence accomplishing some kind of political change can’t be excluded.
Yet another possibility is that the government of Valdis Dombrovskis regains the trust of the public and is able to enjoy genuine support. Certainly, Dombrovskis himself has a clean, if relatively short political record in Latvia. Maybe the population somehow suffers through the austerity without losing trust in the state. Sometimes miracles happen.

More than coincidence -- and a no-future scenario?

Recently I participated in public panel discussion of Latvia's international image, certainly the focus of bad news (see BBC's Newsnight series on collapsing Eastern Europe). When it ended, the person sitting next to me, a Latvian academic married to a foreigner, announced that she was moving to her husband's European home country. "I have two children," she said, adding that her doctoral studies in the other country would be less expensive than in Latvia.

Today flying to Stockholm, I stood near two Latvian women and a little girl (the younger woman's child) waiting to board my Ryanair flight. We got to talking, and it turns out they were both leaving to work as caregivers for triplets born to a Swiss woman running a hotel in Grenoble. The somewhat older women ended up sitting next to me on the plane and told me she had lived and worked in the US for seven years, then come back to Latvia in 2006. 

"I discovered no one needs me and my excellent English or any other skills," she said of her decision to move away from Latvia. 

Is this all coincidence or are more and more educated, skilled people leaving despite high unemployment in other European countries? We shall see.

One thing is clear -- if you have kids in the Latvian public education system, it is now time to consider private school  if you can afford it, or to emigrate. With the budget cuts proposed for education (both elementary, secondary and higher), it is likely that the quality of education will plummet based on attrition of teachers. It is not outrageous to say that public education in the country will start to disintegrate over the next two years.

At the same time, wage cuts of up to 40 % for the police mean there will be a severe decline in public security, a rise in bribe-taking opportunities and probable attrition of the police force to levels where it will barely be able to investigate crimes and keep public order.

All of this could have been mitigated by different, more cautious economic policies in the past three years. These opportunities were missed by previous governments, and there is nothing the present government can do to undo these mistakes. The government of Valdis Dombrovskis will preside, in all likelihood, over the nearly complete collapse of the Latvian economy.

Clinical death, devaluation rumors and stimulus

Latvia's Minister of Economics Artis Kampars (New Era/Jaunais Laiks/JL) has declared the Latvian economy clinically dead in a newspaper interview.
The new minister said that the present government under Prime Minister Valdis Dombrovskis (also JL) could not be blamed for the situation it inherited.
I have written previously that Dombrovskis is very clearly a "fall guy". By his remarks, Kampars has confirmed that the economy has collapsed/will continue to collapse on his watch. It doesn't mitigate things to say that JL warned of the impending economic crisis. The party decided to take the wheel of the state when it was well beyond any braking distance from the edge of the cliff.
Meanwhile, the PM has stirred new devaluation rumors by saying that the international lenders were divided on whether Latvia's strong lat should be decoupled from the euro. He said that the International Monetary Fund (IMF) didn't object to devaluation, but accepted that Latvia didn't intend to devalue. Meanwhile Dombrovskis indicated that the European Union (EU), also a major lender, didn't think devaluation was a good idea.
Bank of Latvia President Ilmārs Rimšēvics has urged the government to stimulate the economy. One wonders with what? Kampars said that while bureaucratic procedures to use EU and government money for improving the insulation of residences would take a long while, he expected some activity in this area in the summer (before funds are available?). Well, we will see who is running around with rolls of insulating material in June...
Rimšēvics also thinks that Latvia will be eligible to join the euro zone in 2012. It might just meet some of the inflation criteria (but don't count on it), but certainly not the national debt requirements. Think 2020 if we are lucky.
I say: worst case scenario devaluation by June (fuck you very much, Latvian Security Police), 20% unemployment soon, massive labor emigration by spring 2010 if Europe starts turning around. The first to go to well-paid cleaning jobs will be Latvia's teachers. Watch for a collapse of the education system in 2010 and 2011 as opportunities appear to GTFOFL*.

*get the fuck out of Latvia, what did you think?

Can Latvia's "golden age" be repeated?

There is an interesting blog post by a former commentator for the daily Diena, currently an economic analyst with Swedbank, Pēteris Strautiņš. He says that Latvia's post independence "golden years" were 2000 to 2004, when the country experienced balanced GDP growth of 6 - 8%, including steady growth of manufacturing. The post, in Latvian, can be read here.

The trouble, Strautiņš writes, started in 2005 as manufacturing growth stagnated and continued in 2006 and 2007, as the credit-fed boom took off (with double-digit growth). The Swedbank analyst believes there is a chance to restore balance and go back to the kind of economic growth seen in the "golden years".

Against this view stands the prediction by economics blogger Edward Hugh that Latvia could (will?) face a worst-case scenario where the economies of Europe undergo a "V" shaped recession (sharp drop, short time at the bottom, sharp rise), but Latvia goes into a "U" shaped recession. What this means is that Latvia experiences a sharp drop, stays "down" for a time, and then picks up again. But with much of the rest of the EU ahead of Latvia, the earlier recovery there will simply siphon off migrant workers from Latvia and the other "late recovery" economies.

To be sure, there will be harsh competition for these jobs, but Latvian migrants have a generally good reputation in places such as Ireland and the UK, perhaps Germany. So as Europe recovers and Latvia stagnates, as many as several tens of thousands of younger, educated or otherwise skilled workers could leave the country.

Experience hitherto shows that there are little or no incentives for Latvians in the  so-called "second emigration" to return. The "first emigration" -- my parents' generation, fled from the Soviet occupation. Their goal was to restore an independent Latvia. Emigration 2.0 are people -- I believe-- choosing not only higher wages and better economic conditions, but also better governance in their adopted countries and workplaces.  A significant signal was that even in 2006, as the boom in Latvia was taking off, only a few hundred of the tens of thousands of Latvians in Ireland (also then a booming economy) voted in the Latvian national elections. These people had turned their backs on Latvia as a political entity. Economically, they repatriated (and still repatriate) lots of money, and with Ryanair, are able to maintain family and essential social contacts with Latvia, but they have given up on being fully/politically part of Latvian society. 

If Edward Hugh's scenario plays out, then the number of emigration 2.0 Latvians will increase, the number of potential taxpayers in Latvia will fall, and the  "U" shaped recession could turn into an "L" shaped indefinite stagnation with a dwindling and less productive (the most productive having emigrated) labor force supporting an increasing number of "transfer consumers" (pensioners, the sick, children, the disabled and permanently unemployed). 

Maybe Strautiņš is right. But the second "golden age" may only come sometime in the mid-2010s, which is too late for anyone who sees quicker opportunities elsewhere and, like very many Latvians, deeply mistrusts the "system" in this country. That mistrust (a rational and experience based mistrust, I might add) is probably the most lethal of "poisons" circulating in the national bloodstream. 

I am of an age where recovery in 2015 or 2018 will technically have me out of the labor force. But people who are younger, in their 40s,  could hang on but for what amounts to the plundering of their future pensions by the present government, which has cut drastically contributions to the so-called second level pension funds. It is easy to calculate that this generation will have much lower pensions, so why not switch to a system that is more reliable-- Ireland, Sweden, take your pick. Also, there have been proposals to force these pension funds to invest in Latvia only, therefore depriving the fund beneficiaries of better returns on their pension capital in other markets and countries.

Yet another signal to thousands of Latvians that it is time to pack up and leave. 

Blaming the media for the facts

Latvia is spiraling downwards. The government thinks GDP will fall over 12 % this year. Swedbank is said to forecast a 15 % drop. There are no signs that the International Monetary Fund (IMF) or the European Union (EU) will accept the government's proposal to allow a budget deficit larger than the one specified in the agreement with the IMF. That means cutting not 280 million LVL from the budget, but 700 million LVL. That, in turn, means cutting social services and other essentials, probably even reducing pensions. That, in turn, may lead to social unrest.

That is the situation now. In the future, it may be even worse. If Latvia fails to get additional foreign funding, it will essentially go bankrupt by the summer. There are few facts or economic indicators that speak against this.

However, it now seems that to tell things as they are is the real cause of the crisis in Latvia. Not the incompetence of previous governments (both here and in other countries, to be sure), not the failure to heed expert warnings. The crisis is caused by the media.

This was an opinion expressed by two PR and media relations people at a discussion recently  hosted by the Latvian Institute on the topic "What do you say when there is nothing to say".  It was a difficult topic, because from a journalist's viewpoint, there is something to say -- the facts (and what reputable sources say about them). From the PR standpoint, the view was that one had to say happy things, because saying depressing things was a sign of poor self-esteem and harmful to the country and its image.

Self-esteem is a good thing, but it was not the lack of self-esteem or lack of  national pride that caused massive overborrowing. It was shortsighted arrogance that caused the government to adopt a "pedal to the metal" attitude on a burst of economic growth that was fueled largely by credit and a wild real-estate boom. These conclusions can be backed by facts and figures. Latvia's spiking inflation rate for part of last year was caused by the huge amount of credit-generated money in the economy outrunning the supply of goods, services and real property (so that prices rises would always be met by borrowed cash able to pay for them).

There are examples of success and competence in Latvia and I mentioned this in the panel discussion. I spoke of TiVi, the Latvian IP telephony and video streaming solutions company, about Sidrabe, the high tech surface coating technologies company. And I did not deny that Latvians were generally competent and intelligent people, as witnessed by the successes abroad (in Ireland and other countries where they have gone as labor migrants). Latvia's problem (one of its problems) has been corrupt and incompetent leadership, and the mission of journalist is to find and publish facts that expose this and other problems (and to speak of accomplishments, as well). 

Now, as municipal elections approach in the middle of an economic crisis, the happy news spinners have started working again. Fine, it is their job. The media's job is different. Whether it is too late to change anything is still, maybe, an open question, although I think the chances are slim.