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. 

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.

Latvian teachers protest wage cuts

More than 10 000 Latvian teachers marched on the Cabinet of Ministers' building in Riga on April 2 to protest sharp cuts in salaries. The austerity measures have been imposed to meet cuts in public spending required by the International Monetary Fund (IMF)  and lenders from the European Union in order for Latvia to receive EUR 7.5 billion in loans to keep the country from going bankrupt. 

The old lady speaking at the end of the video (with my rather sketchy subtitles) illustrates the mood of many people (though she was a passerby watching the event, not a working teacher. The Minister of Finance, Einārs Repše, told the hostile gathering that it was economically impossible to avoid the wage cuts on educator's salaries, which in many cases do not exceed LVL 350 a month or around EUR 500. However, commentators on Latvian internet portals said that even at this level of income, teachers were privileged and many were paid a much higher combination of basic salary and workload supplementary payments.