The disaster continues...

I have just returned from being in the US for just over two weeks and, due to sporadic internet access, I have been following developments in Latvia sporadically. The main events/news/rumors concern the continued collapse or hapless reduction of health services, including emergency medical care. The so called First Hospital in Riga (Pirmā Slimnīca) is being reduced to a day clinic and private medical facility, with an apparent sharp reduction in emergency medical services. So don't fall ill or have an accident in downtown Riga, which the hospital used to serve. Some 570 medical and non-medical staff are being laid off, effective almost immediately. There are now stories circulating of Latvian physicians applying for seasonal harvest work in Great Britain (through a company in the news because of dubious recruitment practices).

A couple of years ago, I was informed of a Scandinavian-based project to set up a commercial, state of the art hospital in Riga (or buy one of the existing ones) to provide offshore care to foreigners as well as paid and pro bono care for locals. This seems to have come to naught, as a foreign acquisition could be one way to "save" the First Hospital or Hospital No. 1 (a better translation?). One wonders why the government isn't putting up most of Latvia's hospitals, especially the better equipped ones, for sale rather than turning them into skeleton-staffed clinics? Is the government ineptly covering up that it is, in effect, privatizing health care? So why not do it openly and say -- we are selling our "superfluous" hospitals in an international tender. concession or whatever. In other words, allow international health care corporations to bid for these hospitals with certain conditions for providing low cost care to all citizens (or setting up private insurance schemes) rather than closing or downgrading the places as day clinics and letting (some) heart surgeons pick vegetables in Ireland?

Some of the wildest rumors claim that the hospital will be torn down to make room for a casino, a story that could have been fueled by Riga mayor Nils Ušakovs reported statement that he would like to see "a little Las Vegas" in the Latvian capital (gambling and entertainment resorts for tourists, mainly from Russia where the casino business has been shut down or exiled to the edge of the Siberian tundra).

Meanwhile, there are reports that under the still-confidential new agreement with the International Monetary Fund (IMF), Latvia may be raising its value-added tax (VAT) again to 23 %. There are very optimistic predictions that additional tax revenues from this and possibly a progressive income tax should reduce the need for budget cuts in the 2010 budget to LVL 260 million from the previous assumption that LVL 500 million would have to be cut. OK, there is a report that tax revenues in recent weeks have been trailing planned amounts by only 1 %. But I firmly believe that further VAT hikes will not increase revenues and shift transactions in certain items to the gray market. Tax evasion is a normal and, I think, morally justifiable form of resistance to an inept government that has broken the promise of rendering basic services for the taxes it extracts from the population. The government, by suddenly and seemingly irrationally (state of the art hospitals closed or downgraded, pensions cut--although Sweden has done that, too-- other services attacked with a percentage-guided axe swung in the dark) reducing the return on citizen's taxes will inevitable decrease the tax base through salary cuts, unemployment, and tax evasion. The sums to be cut from future budgets will increase, rather than decrease as government revenues spiral downward, spurred by the government's own policies.

Bumbling toward minarchy in Latvia

I have always been interested in libertarian politics and consider myself a libertarian on most issues -- decriminalizing drugs, legalizing gay marriage, striking victimless crimes from the law books, abolishing compulsory military service, etc. Broadly speaking, libertarians are divided into two camps -- minarchists, who favor a small, night watchman government, and anarchists, who prefer to let society self-organize without a state.

Without going into that debate, an interesting observation on the topic of this blog is that with the massive, rushed and hectic budget cuts that Latvia is undertaking, the country is, in fact, bumbling and stumbling in the worst possible scenario toward becoming a minarchy. When the LVL 1.5 billion are cut from the government budget over the three years 2009-2011, and when the real effect of the formal cuts on tax revenues (and tax evasion) take hold, it is likely that Latvia will be able to finance little more than a skeleton police force, a small professional military and some kind of court and criminal justice system. At least on paper.

The problem is that states, especially states with bloated bureaucracies and massive inefficiency in public administration such as Latvia, have created dependencies and reliance by the population that is very painful to cut and betray in the kind of series of short and desperate actions that the Latvian government is taking.

Employers have been compelled to pay social taxes on behalf of employees, among other things, for their pensions, and these pensions (some have argued, with considerable merit, that they are the vested private property of pensioners) are now being confiscated, all expectation of any benefit from the compulsory diversion of income has been shattered.

If Latvia were seriously moving toward minarchy, an essential step would be to cut social taxes and leave employees with more income to divert to private pension insurance schemes. Younger employees could have the option of spending some of their income to support sick or elderly parents or grandparents.

Since the government is, essentially, gutting the state health care system, it should also cut taxes to allow individuals to buy private health insurance and do nothing that would inhibit the rapid formation of private hospitals and other medical care facilities, where private insurers would pay most of the bills.

Education is another area that has been bulldozed by the government, making teaching the lowest legally paid "profession" in the country, assuming that one cannot be paid below the (reduced) minimum wage in the public sector. However, no steps have been taken to encourage the creation of private and cooperative schools and of "informal" education.

By late summer, it will become clear that the schools in Latvia will not open on September 1 (there may be a "stay-away" strike on the first day) and will be seriously depleted of teaching staff if they do open. So the issue of alternative, non-state education will be acute by fall. Creative solutions may have to be found, such as, perhaps, gathering pupils at library internet access points for instruction by internet video (rural children could be charged a small fee to watch lessons at private schools in Riga).

The police will also be severely affected by the cuts, with the result that the ability of the police to prevent and investigate crime will deteriorate, bribe-taking will increase and the police force will continue to lose its best and brightest to emigration and private sector work.

Little has been done to create an alternative system of private law enforcement by expanding the role of private security companies (perhaps allowing certain areas of the country to invite tenders for private law enforcement coverage).

In short, Latvia has unwittingly started on the path to minarchy, but has nothing resembling a transition plan, nor any substantial analysis of how this can be done. Indeed, the government is still projecting the illusion, to the public, that its current path of budget cutting will somehow lead to a system that still provides state-funded pensions, health care, education and law enforcement when, in fact it is (unintentionally) reducing these government entitlements and services to a completely inadequate and disfunctional level. The Latvian population will, over the next 18 months, be forced into the worst kind of minarchy. It remains to be seen if civil society can somehow improvise around this process.