Latvia: Cobbling together a "kludge" of a government

It looks like Latvia may have managed to cobble together a fragile coalition of Unity/Vienotība (V), the tatters of the Zatlers Reform Party (ZRP), six ZRP defectors and the National Alliance (NA). By now it should be obvious that the bright sun of change some Latvians have expected since the founding of New Era (Jaunais Laiks/JL) almost ten years ago, and that they expected, yet again, with the V alliance in 2010, and yet again with the dismissal of the Saeima and the new elections, has slipped back below the horizon. Another false dawn.

So what can we expect? Valdis Dombrovskis will continue at the helm of a listing ship with six loose cannons on deck (perhaps more, one can't say that the disintegration of the ZRP has ended with the mere loss of 27% of its parliamentary strength). There is already talk that oligarch influenced Green/Farmers Union (Zaļo Zemnieku Savienība/ ZZS, which neither particularly green nor agrarian) could be called out of its political leper colony to boost the coalition should all else fail.

That, of course, would be a symbolic death blow to the ZRP, which was built, overnight in political movement forming terms, on the idea of opposing the “oligarchs” and the practice of state capture. The six loose cannons have indicated this could be fine with them, providing that no direct representatives of Ventspils mayor Aivars Lembergs (from his Ventspils based “sub-party”) are involved. Dombrovskis, too smart not to be aware of the kind of crew he is sailing with, has also hinted that the ZZS might be let in the back door. After all, they are weaker than in the last Saeima, when they did everything to disrupt V's attempts to govern coherently. But then coherent governance has never been and is unlikely to be a Latvian priority in the foreseeable future.

The Harmony Center (Saskaņas Centrs/SC) has forecast – motivated by some bitterness – that the coalition will be lucky to last until next spring. They may be right. They have also indicated that as a harsh and firm opposition, the SC will continue to advocate social democratic policies. When it was offered a chance to govern together with the center-right, the SC quickly abandoned the social democratic populism that got it elected. More evidence that the SC are chameleons, never mind inexperienced (maybe a virtue where “experience” is being part of two decades of misrule) at national government.

After the “Sunday morning surprise” popped on everyone by the chief loose cannoneer Klāvs Olšteins (who burned through two political parties this year so far), it is safe to say that anything can still happen by the time the Saeima has to vote on the new government on October 25. But it seems likely that the present kludge (to use IT slang) of a government will get approved. Then the whole company of 100 merry pranksters will have to pass yet another austerity budget for 2012. How much more will have to be cut, and will the cuts keep up with the deterioration of the tax base due to emigration and the drift of the population into the gray economy is an issue that no one has talked about yet in and depth. Everyone has been watching the political circus or balagāns of the past five weeks. The real horror show may start with the budget. 

Dombrovskis hopes for the best after 19.6 % GDP drop

Despite a 19.6 % drop in second quarter GDP, Latvia's prime minister Valdis Dombrovskis does not believe the country is heading into a so-called L shaped recession, the portal Delfi reports (in Latvian). In an L-shaped recession, there is a sharp drop followed by prolonged stagnation.
Unfortunately, this is unwarranted optimism. The problem is not the presence or lack of stimulus (although mechanical and largely chaotic budget cuts of over LVL 1 billion are a considerable "anti-stimulus"), but one of trust in the Latvian government as an institution. This, I believe, has completely and irrevocably failed. The past governments have allowed the country to spin into a recession and crisis that is far more severe than had some preventive measures been taken over the past two or three years. The present government has irreparably broken the compulsory social contract by effectively shutting down health care and education and cutting pensions (by 70 % for working pensioners). It has raised and plans to additionally raise taxes as the tax base contracts, thereby stimulating only the gray economy.
Don't get me wrong -- there is a lot of waste in the way Latvia is governed and in the way medical and educational services are delivered, but to chop them off and toss this into the "care"of society with little warning is not a solution. The right thing to do would have been to carefully analyze (by independent third parties) the gross inefficiencies of Latvia's government and public services and to start a gradual downscaling (privatizing hospitals, but setting up a credible private/cooperative health insurance network, cutting taxes and allowing broader use of private pensions, setting up private/cooperative schools with tax reductions and deductions). I suppose it would take some 10 years to move Latvia toward a night-watchman state with minimal taxes and a core of police, judiciary and defense services. Instead, the government has announced no plan, it has broken implied social promises and it has demoralized the able, working parts of the population ensuring that, as soon as the rest of the EU starts to recover, tens of thousands of Latvians will emigrate. This will ensure the stagnation of the economy as labor skills and entrepreneurial talent go elsewhere.
I am afraid that L is where we are going.

The EU: A choice of better governance and society

There was a theme in my earlier post that should be expanded upon. It will soon be five years since Latvia joined the European Union (EU) and there will be various assessments of the impact of EU membership.

I believe the most dramatic and, perhaps, underrated impact of EU membership is an aspect of free movement of people that is little discussed. We often view this freedom as one to study or temporarily work (for experience or better pay) in another EU country, or, for some, to set up a business in another country. But, in fact, free movement allows EU citizens not only to move for economic or academic reasons, but also to make a real choice of governance and of social environment.

It is clear that in many countries, the level of government efficiency, responsiveness to its citizens, general transparency and lack of corruption differs significantly from Latvia. In many countries, governments may not be very pleased with criticism directed against them, but they don’t label their citizens “yappers” (vaukšķi). They try to respond to criticism because they realize that, ultimately, the critics are the people who “hire” them to run the country with their tax money. They are public servants, like it or not. In Latvia, the ruling elite has been a class unto itself, convinced beyond argument of endless “fat years” or of their own abilities as bulldozers or space shuttles.

I won’t mention the government of Valdis Dombrovskis here, because I think he was put iin as a fall guy or is the first officer of the Titantic, kindly asked by the captain to “take over the bridge” just as the floor starts to tilt a little. His role is to go down with a ship that can’t be rescued any more.

Beside the arrogance and state-capture corruption (dozens of seats on state-company boards for “our own people”/savējiem, though now some are being liquidated), Latvia also shows a high degree of societal degeneration. It can be seen on the streets -- staggering drunks, rude, brutal public transport wardens, nervous, morose, despondent or anger-ravaged faces everywhere. A sight seldom seen in other European countries, even Scandinavia, where public displays of moods or emotions are muted. 

For many ethnic Latvians, there is also a certain discomfort from the cruder aspects of the Russian population -- the swaggering, shave-headed, running-outfit clad lumpenproletarians/urlas that one sees, especially in the Soviet-era housing areas of Riga. Behaviorally, these people are like the inhabitants of an American ghetto -- diminished work ethic, substance abuse, aggressive and crude behavior. 

Given the choice of going somewhere where these problems are not present, and paying only the price of having to use another language at work and daily life outside the home (most likely English), it is perfectly logical that increasing numbers of Latvians are “giving up” on their own country and choosing places with a better (though far from perfect) system of governance and social environment.

Another facilitator of what I call governance/social environment choice may actually have been brought to Latvia by the “Bulldozer”, former Minister of Transport Ainārs Šlesers -- namely, the low-cost airlines led by Ryanair. These make “virtual emigration” possible and relatively painless. In other words, Latvians can live under better governance and in better social environments without losing contact with the essentials of what was important or good for them in Latvia. Within a couple of hours, anyone can fly in from Ireland, Britain or elsewhere in Europe to visit family, friends, favorite places.  With fast internet connections, video links and Skype, “real virtual” presence is possible as well.

So we have a phenomenon of as  yet not consciously self-contained Latvian communities growing across Europe (in Ireland, Great Britain, eventually elsewhere), communities, which like the one in Ireland, where only a few hundred of some 20 000 Latvians voted in the 2006 Latvian elections. This is a definite sign of political alienation, whatever other ties they may maintain with Latvia. Moreover, these communities are self-selected (people decided to emigrate, they didn’t flee like the post-war Latvian emigres) and consist largely of people with the ambition, skills and self-confidence to start a new life in a new country.  In one sense, a bleed-off of Latvia’s potential, on the other hand, an inevitable result of state/societal failure combined with unprecedented opportunities for choice of governance and ease of transport and communication.