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. 

Dazed and confused and swingin' that axe

Information has been reaching Latvian media about the government's so-called structural reform plans, but it is somewhat contradictory and confusing. It was announced that of 77 state agencies, 50 % would be eliminated. It was not clear why 50 % and not 25 % or 80 %. Nor were the selection criteria any clearer. Some of the changes would affect agencies that were, in fact, museums (like the one at ex-president Karlis Ulmanis* former country home), others were aimed at merging or reshuffling agencies related to the Ministry of Health. Something called the Pharmaceutical Pricing Agency and some other health-related agency would be merged into something called the Health Care Economics Agency (I translate loosely from the Latvian). Whatever any of that means...

What the point of this is evades me. It is clear that by this fall, there will be little or no government funded health care -- no elective surgery, many regional hospitals reduced to day health centers with little or no funding, no more emergency health care except for some remnants in bigger cities (without a national medical helicopter service, private or otherwise, victims of serious highway and other accidents are simply going to die more often.)

As opinion makers and experts queried by the national daily Diena pointed out, there are goals in terms of numbers and percentages for cutting this, that or the other thing (wages, staff, number of agencies) but no vision of why this is being done and what, exactly, it is that the Latvian institutions of governance are supposed to do.

I have raised the issue of reducing Latvia to a minarchy, which is where the reforms and massive budget and government salary cuts all point to, But there is no conscious plan and long term, socially responsible scheme for doing so. As I write, there are reports that the government (the Ministry of Economics) is looking into raising taxes -- imposing a new capital gains tax, a dividends tax and perhaps even raising VAT on top of one failed VAT increase earlier this year (VAT revenues are down). If you are going to completely gut such services as health and education, the right thing to do is to slash taxes and give people more money to buy these services on the private market or to toss their share into a cooperative and non-profit venture such as a cooperative school. It should also promote private health insurance and various mutual insurance schemes to fund what will be within a few months geographically limited pay-as-you-heal health care.

The US is not a shining example of publicly funded health care nor does the US system work all that well, but when my dad fell ill last year and passed away after nearly six months in various kinds of care -- hospital, home assistance, a rehabilitation home -- he didn't leave my mom with a mountain of debt. His private insurance and Medicare/Medicaid/ whatever took care of it.

According to one news report, some small enterprises are taking things into their own hands and switching from on-the-books, taxpaying mode to the grey/barter economy. When agents of Latvia's State Revenue Service raided an auto repair shop, they found it busy with people fixing cars, but no books or records had been kept for many months. Those questioned claimed they were swapping favors with friends. A mechanic working on a car said he was doing the job without pay because the owner of the car had just helped him weed and hoe his garden. If that was true (which it may not have been) what is the Revenue Service's problem? No money changed hands, there was no classic economic activity.

I see a distinct economic and social logic in the grey/barter economy. Why can't a cooperative of auto mechanics trade hours of work (of different complexity) for hours of medical care for their families or repair tractors in exchange for vegetables and milk? The medium of exchange is not money, though it can (and has in some experiments around the world) be reduced to a virtual currency equivalent. Tax that! And at the same time as there is no way presently to extract tax cash from standardized barter transactions (as far as I know) -- one hour of engine tuning = one tooth cleaning at the dentist's or whatever, this system can make up for state failure. The auto repairshop works on the cars of most of the health care workers in their area and, theoretically, builds up a surplus of doctor visit hours, which it can distribute to families of its staff or, as a gesture of solidarity and good will, pool into a "free" health care fund for the indigent in the local area. It is patchwork, but maybe better than the nothing the goverment is pushing toward.

It is really, really hot for a Latvian summer night, so I may be rambling here. Comments are welcome.