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“No People, No Problem”: The Baltic Tigers’ False Prophets of Austerity

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By Jeffrey Sommers, an associate professor of political economy in Africology at the University of Wisconsin-Milwaukee and visiting faculty at the Stockholm School of Economics in Riga, Arunas Juska, associate professor of sociology at East Carolina University and an expert on the Baltics, and Michael Hudson is a former Wall Street economist and a rofessor at University of Missouri, Kansas City . Cross posted from Counterpunch.

The Baltic states have discovered a new way to cut unemployment and cut budgets for social services: emigration. If enough people of working age are forced to leave to find work abroad, unemployment and social service budgets will both drop.

This simple mathematics explains what the algebra of austerity-plan advocates are applauding today as the “New Baltic Miracle” for Greece, Spain, and Italy to emulate. The reality, however, is a model predicated on economic shrinkage as a result of wage cuts. In the case of Latvia, this was some 30 percent for Latvian public-sector employees (euphemized as “internal devaluation”). With a set of flat taxes on employment adding up to 59% in Latvia (while property taxes are only 1%), it would seem hard indeed to present this as a success story.

But one hears only celebratory praise from the neoliberal lobbyists whose policies have de-industrialized and stripped the Baltic economies of Lithuania and Latvia, leaving them debt-ridden and uncompetitive. It is as if their real estate collapse from bubble-level debt leveraging that left their basic infrastructure in the hands of kleptocrats, is a free market success story.

What then does a neoliberal “free market” mean?

After a half-century struggle for independence, the Balts emerged in a world where neoliberal policies were the global fashion, and where the dress code and face control were initially enforced by the world’s international financial institutions–and later even more aggressively internalized by Baltic policymakers themselves. Twenty years of neoliberal policy after emerging from Soviet rule have left the Baltics a mess. On the lead up to the 2008 global economic crisis and the world’s biggest collapses the financial press was praising the Baltic Tigers for dutifully imposing rule by bankers.

Now, after the storm has quieted in the Baltics, Anders Aslund and other apologists are at it again as they promote the Baltic model. Aslund did so most recently with his Petersen Institute banking industry funded book on Latvia’s “remarkable” rebound. The only thing he failed to mention was that Latvians were voting with their feet in record numbers. Latvians were exiting at a rate of roughly 1% of the population per month in an exodus of Biblical proportions. Indeed, Latvian’s census makers were horrified when they discovered that that the country’s population had decreased from 2.3 to 1.9 million people from 2001-2011.

The situation was close or even worse in neighboring Lithuania where a massive outward migration triggered by the start of global economic recession and collapse of the housing bubble in 2008 now threatens the future viability of this nation state. As the economic crisis intensified, unemployment grew from a relatively low level of 4.1% in 2007 to 18.3% in the second quarter of 2010 with a concomitant increase in emigration from 26,600 in 2007 to 83,200 in 2010. This was the highest level of emigration since 1945 and comparable only with the extensive the depopulation of the country during World War II. Since the restoration of independence in 1990, out of a population of some 3.7 million 615,000 had left the country; three fourths were young persons (up to 35 years old), many of them educated and with jobs in Lithuania. By 2008, the emigration rate from Lithuania became the highest among the EU countries (2.3 per 1,000), and double that of the next highest country, Latvia (1.1 per 1,000).

Forecasts for the period 2008-35 suggest a demographic decline by a further 10.9%, one of the highest rates in the EU (following Bulgaria and Latvia). The 2011 population census seemed only to confirm these grim prognostications. Demographers previously proved to have been too optimistic in their forecasts (the latest issued in 2010) and had overestimated the size of the Lithuanian population by about 200,000. Instead of the forecasted 3.24 million, the census found that by 2011 Lithuania’s population was only just over 3 million (3.054 ml)
These grim numbers suggest a kind of euthanizing taking place of the small Baltic nations.

This, ironically, after having survived two World Wars, two occupations, and several economic collapses in the 20th century. Indeed, at the end of the Soviet occupation, Latvians and Lithuanians were replacing themselves through natural reproduction. By contrast, today, the twin forces of emigration and low births have conspired to create a demographic disaster.

Enter Anders Aslund again, desperately seeking to resuscitate his reputation after the disastrous failures ensuing from his policy advice in the 1990s in the former USSR. Just this week on Monday, Aslund rhapsodized about the success of Lithuania’s harsh austerity regime in the EUObserver. His article had both the upbeat tone of Joseph Stalin’s famous “dizzy with success” speech, while simultaneously reciting a droll set of statistics of a kind of “Five Year Plan achieved in Four” report proving that the economy and country are in better shape than ever.

Let’s look at his most important argument by his own word: that of Lithuania’s “impressive” economic rebound and it high World Bank ease of doing business index rating. Aslund reports that through harsh medicine and free-markets this Baltic Tiger is back. Whether by ignorance or intention, let’s assume the former, Aslund gets the facts wrong. He rightly explains that this Baltic Tiger’s economy crashed by a whopping 14.7% in 2009 (although failing to mention further contractions in 2008 and 2010 on top of that). But, he asserts that this year’s current annualized growth rate is some 6.6%, thus suggesting this neoliberal country is not on the road to economic perdition. This might sound impressive to some, but Aslund ignores that just last week the massive Lithuanian Snoras bank just presented Lithuania (and Latvia) with an exploding cigar that will wipe out most of Lithuania’s economic growth for this year.

Furthermore, even if there was a resumption economic growth, IMF estimates that its rates will remain sluggish at best indicating that probably a decade or more will be needed to return to pre-recession levels of economic activity. Thus, according to IMF projections by 2015 Lithuanian GDP as measured in $US was projected to remain 12% less (as measured in current prices) than in 2008, with unemployment at 8.5%

Finally, we need to contrast anemic IMF economic growth forecast for the next 6-8 years with disastrous social consequences of internal devaluation policies. Consider that Lithuania almost tripled its level of unemployment in Lithuania from 5.8% in 2008 to 17.8% in 2010. Although by 2011 unemployment began to decline to 15.6%, this happened not as much because of creation of new jobs, but because of mass outmigration from Lithuania. Public sector wages were cut but 20-30 and pensions by 11 percent, which in combination with growing unemployment let to dramatic increasing in poverty. If in 2008 there were 420 thousand or 12.7% of population living in poverty, by 2009 poverty rate increased to 20.6%. Although by 2010 there was a .4% decrease in the number of poor to 670 thousand, the decrease was caused mostly by downward change in measuring the poverty. Various measures of quality of life and well-being deteriorated even further indicating prevalence of deep pessimism, loss of social solidarity, trust, and atomization of a society.

The extremely high social and demographic costs of such policies put the very future of sustainable economic growth in the region into question. Investments in education, infrastructure, and public services that are preconditions of the “high,” knowledge-based and higher productivity based economic development were slashed, while brain drain intensified. Although Prime Minister Kubilius was promoting his administration’s economic development strategy based on knowledge and innovations, the very austerity measures implemented by his government were relegating to Lithuania to the “low road” of economic development based on low standards in salaries and labor conditions.

The mood on the ground is sour as well. Lithuanians have emigrated in massive numbers and like their Baltic brethren in Latvia, this has mostly been from people of talent, education, and of childbearing age. Indeed, like Latvia, Lithuania’s latest census shows a hemorrhaging of people out of the country. A kind of gallows humor prevails on the ground too. Recently, a Lithuanian couple in Vilnius reported to the authors: Husband to wife, “we should go back to Norway to work in the canneries. There, you could leave a thousand euros on the ground, return in a year, and it would be still there.” Wife, “nah, no way, too many Lithuanians there.” Their humor is intact, but their sense of desperation grows.

These people deserve better than to have another failed ideology imposed on them. Let’s hope they and others liberate themselves from the experiments of ideologues and stop being pawns in their game. To the rest of Europe, we counsel caution. Joseph Stalin’s maxim, “no people, no problem” is no way to solve an economic crisis. Euthanizing larger nations in southern Europe through large-scale emigration would be as undesirable as it is impossible to achieve. Where would the people go?

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53 comments

  1. JamesW

    We’ve already read about Swedish government officials encouraging their young people to emigrate in search of employment, along with Ireland, Greece, etc.

    Please, just don’t come to the USA — there’s already way too much competition for the day labor jobs here, and they offshore all the better jobs, or import foreign scab workers (or do they call them foreign visa workers?).

    Brazil, that’s your best bet, and the women are very fine looking there……

    1. digi_owl

      Young swedes seems to be heading for Norway, ease of language and short distance has its appeal i guess.

  2. richard in norway

    Our factories are full of latvians etc, where I work about 40% of the workforce are utlander, myself included. The stories they tell about conditions in their homelands are quite scary. I don’t think any of them are going back, not if they have a choice!!

  3. fledermaus

    “The sun beams down on a brand new day
    No more welfare tax to pay
    Unsightly slums gone up in flashing light
    Jobless millions whisked away
    At last we have more room to play
    All systems go to kill the poor tonight”

    It was only a matter of time before the neo-liberals started taking their cues from the Dead Kennedys

    1. Color Me Impressed

      OT, but first “Big Black” and now the “Dead Kennedys”? I have to say it’s nice fans of this kind of music around here. I’ve been listening to it more and more as the economic crisis deepens. It seems like we’re living the future that they were warning us about all along.

  4. Jim Sterling

    Even places like America and the Western European countries do this in a way: unemployment and homelessness are a sort of “emigration in place”. The people are still physically there inside the borders, but they’ve become ghosts to the economy of employers and big taxpayers, unreal, insubstantial, and all but invisible.

    1. rotter

      The thing is, they arent really “not there”..they are scraping by somehow on the last few resources they have left,which neoliberal (thieves? delusionals? death wish narcisists?) policy makers havent been able to reach yet, but which are marked upward suction.

      1. Cal

        Here’s a taste:

        “I am married with one child.

        Husband is a master carpenter who has had no work for 3 years.

        No work anywhere for me either.

        We brought my dad from the nursing home to live with us so that we can keep our house. We are all on the fixed income and get a little bit each month in foodstamps. Our child gets insurance through the State. Thank you State.

        We have no insurance and I KNOW that one day I will die screaming in my bed.

        I need new glasses and my teeth are breaking off. My husband hurts all the time. Oh well. Such is life and it always has been.

        But we are lucky.

        We still have the house and enough land to garden and raise some animals for food. I know how to bake and put up food for the winter. My child never has to be hungry.

        We heat only with wood so he never has to be (too) cold.

        I like shopping at the thrift store and the salvage grocery store.

        I take pride in finding the best deals.

        I don’t want a big screen tv, an infinity pool or a $1,000 purse.

        I just want a sense of security. I want my husband to be able to find work in the field that he loves and for us to have a monetary cushion in case something goes wrong.

        But we are one tiny incident away from losing all of it.

        If just one thing goes wrong somewhere, all is lost.

        And I don’t know where we could go or what we could do.

        I am the 99%

        And I can’t afford any errors or accidents, incidents or misfortunes.

        Ocuupywallstreet.org

        Thank you for being there for all of us!”

        http://wearethe99percent.tumblr.com/page/2

  5. nowhereman

    It is now blatantly obvious what the end game is.

    I can remember (I’m that old) when economic forecasters were talking about the great increase in leisure time we would have due to the increased productivity that resulted from computers and robotics.
    Well how’d that work out for you?

    1. F. Beard

      Well how’d that work out for you? nowhereman

      Yum! A mess of pottage!

      Oops! Where’s my birthright?

      1. scraping_by

        The only reason in ideology. Any trickle down right wing corporate economic discussion about increased productivity is immediately tied to the idea of fewer workers. Lighter work weeks are simply left out of the article.

        France was, pre-Euro, famous for taking their increased wealth in increased leisure. Now the ECB, through its local representative, is complaining about an easy going middle class life. Wonder if they saw that one coming?

          1. Tao Jonesing

            You are correct. It is not a real reason, it is THE real reason. Whether you accept that reason as valid or not is besides the point.

    2. Blissex

      «the great increase in leisure time we would have due to the increased productivity that resulted from computers and robotics.
      Well how’d that work out for you?
      »

      That has worked out very well for the owners of the computers and robotics. If you believe in the fullness of property rights that’s exactly what should happen: people who don’t own the computers and robotics have no right to their benefits.

      If you own a house, has anybody else a right to live in it?
      If you own a car, has anybody else a right to use it?
      If you own a prestigious degree, has anybody else a right to a chunk of the earnings it commands?
      If you own a hotdog stand, has anybody else a a right to a chunk of its takings?

      Most Real Americans think similarly: if you don’t own a property, you have no right to its fruits.

    3. Lil'D

      The powerful take the lion’s share.

      And remember, the “lion’s share” doesn’t mean “most of it”,
      the lion gets whatever the lion wants, and the lion’s share is 100%

  6. craazyman

    “In those first years the roads were peopled with refugees shrouded up in their clothing. Wearing masks and goggles, sitting in their rags by the side of the road like ruined aviators. Their barrows heaped with shoddy. Towing wagons or carts. Their eyes bright in their skulls. Creedless shells of men tottering down the causeways like migrants in a feverland. The frailty of everything revealed at last. Old and troubling issues resolved into nothingness and night. The last instance of a thing takes the class with it. Turns out the light and is gone. Look around you. Ever is a long time.”

    -Cormac McCarthy, THE ROAD, roughly page 28, Vintage Books, National Best Seller, published in 2006, prophecy in metaphor of what he have experienced since, oh, maybe mid-2007 or so, cartography of neoliberal narcosis, financial rape and neo-fascistic premeditated billyclubbery, who needs Nostradamus when you can see it right in front of you, laid it so prettily like a gravestone bouqet?

    1. James

      Thing about gravestones is that EVERYONE has one – metaphorically at least. And almost all of us – rich and poor alike – have one coming up, most of us much sooner than we would like.

      Take it with you? Not from what I’ve heard. Lasting legacy? Once again… although apparently some are still not convinced.

      Brother’s keeper? Apparently the jury’s still out.

      We’ll see.

    2. James

      Gather your deeds and your possessions,
      Whatever certainty you’ve known,
      Forget your heroes,
      You don’t really need those last few lessons.

      Stand in the open;
      The next voice you hear will be your own.

      Well alright, they knew how they could hurt you,
      And you let them cut you to the bone.
      But God forbid,
      You allow them to rid you of your virtue!

      Forget their laughter;
      The next voice you hear will be your own.
      [ Lyrics from: http://www.lyricsfreak.com/j/jackson+browne/the+next+voice+you+hear_20068651.html ]
      The next voice you hear…
      The next voice you hear…
      The next voice you hear…
      The next voice you hear…
      The next voice you hear…
      The next voice you hear will be your own.

      Throw down your truth and check your weapons.
      Don’t look to see if you’re alone,
      Just stand your ground,
      And don’t turn around — whatever happens.
      Don’t ask directions;
      The next voice you hear will be your own.

      The next voice you hear…
      The next voice you hear…
      The next voice you hear…
      The next voice you hear…
      The next voice you hear…
      The next voice you hear will be your own.

      -Jackson Browne

  7. Crazy Horse

    Jackson Hole, Wyoming, that place where the Banksters and their Representatives meet each year to collect moose berries and plan the state of the world—- its difficult to be served a drink anywhere in town by a waitress who isn’t Romanian.

  8. Justicia

    Alternatively, they could distribute free smokes to the unemployed. In 2001 Philip Morris produced a cost-benefit analysis on tobacco’s “death benefit” showing that cigarette smoking reduced public pension costs to the Czech state. (Of course, they disavowed it when it became public.)

    1. scraping_by

      Out in the reaches of paranoid conspiracy tinfoil hat land, there’s a theme that industrial pollution, food additives, wonky vaccines, adulterated baby food, etc. are a deliberate policy by the elite to depopulate the lower economic classes.

      While this is often part of an advertisement to sell filtration water bottles, it’s true enough that when humanity gets in the way of wealth flowing upwards, it gets trodden down. Limiting life to the important things of getting and spending needs more than propaganda.

      1. Jim Sterling

        There are rare occasions in history when the owners find the workers inconvenient, and just want them gone. One was in Scotland, when landlords discovered you could get more for raising and selling sheep than from collecting rent from the tenants on the same land. In a flash the Highlands were cleared and the Scottish workers sent away to either die of starvation or find a new life in another land.

        But in general they don’t want to get rid of labor: they want *more*. Their complaints about people having children are only so they can avoid supporting them, and their complaints against immigrants are only to ensure the immigrants (and you, the native) are isolated from, and intimidated by, one another . Not to actually prevent them entering the local labor market.

        Perhaps a disruptive new robotic technology may suddenly turn the situation around so that the world’s owners truly wish to cull the workers, but not today, so for now it’s counter-productive to spread rumors of genocide, because it’s so obviously untrue. For now, they like seven billion workers, and they’re going to try for twelve billion.

        They don’t want you gone; they want you hard working, plentiful, replaceable, landless, and cheap.

  9. Psychoanalystus

    There is a lot of anger out there. I got a feeling that when the shit really hits the fan, this is not going to end well for the plutocrats.

  10. ITS

    This is what, in practical terms, the United States of Europe means. This is not different than the emigration within USA states, largely driven by econimic conditions. For that matter, there has been significant emigration between rural and urban areas in all European countries after WWII (e.g, between north and south Italy). Any Portuguese, Greek, Spanish, etc citizen can move to Germany or France. Is it the end of the nation state in Europe? Sure, but this was the dream of European political elites all along. Free labor movement is a rational response to a free market world.

  11. Daniel Hewitt

    “Although by 2011 unemployment began to decline to 15.6%, this happened not as much because of creation of new jobs, but because of mass outmigration from Lithuania.”

    No supporting calculation is provided for this statement, and the data cited elsewhere in the article gives the impression that the author could have easily included one.

  12. JoachimC

    The article failed to mention third and rather different “Baltic tiger” Estonia that has managed to steer clear most of the problems experienced by Latvia and/or Lithuania.

    Being a citizen of the unmentioned country, I am no fan of neoliberal policies, but one has to acknowledge that at least in the case of Latvia one the main current shortcomings (including mass emigration) are as much related to corruption and dysfunctional political system.

    Just as an illustration: Estonian banks (autonomous branches of Scandinavian banks) are overcapitalized while Latvia had painful bailout of a domestic Parex bank that failed due to proper oversight. Recently Lithuanian Snoras bank had similar problem that is related to out of control oligarch who was stripping his bank of assets…

    1. Yves Smith Post author

      Is tourism doing better in Estonia too? I was in Tallinn for all of a day the summer before last, and it and Visby were my two favorite stops (the local crafts in Tallinn were also really first rate).

    2. JoachimC

      To my knowledge, it is. If I recall correctly then Estonia (pop 1,3M) has more hotel rooms than Latvia (pop 2.2M) or Lithuania (pop 3.2M). Though, in the case of Lithuania, I could be mistaken.

    3. Lynx

      I – being and Estonian – was also little surprised of honorable no-mention in the article. It is not that we do not have an emigration problem – it is probably just not as serious as in Latvia&Lithuania. What I hear from people near southern border, we actually even have inbound labor from Latvia.

      I believe there is just one big reason for that – if Estonians go to work abroad, it is predominantly Finland. Similar language and close enough to come back home every weekend. And it is easier to attract Finnish (and Swedish) capital here compared to Latvia&Lithuania. In the end, there are number of small factors, but they add up.

  13. Martin

    The way we measure unemployment here fits the model. When no one has work and stops looking. We will have zero unemployment.

    1. Fraud Guy

      A now classic line in fraud prevention:
      Yes, I can stop all of your fraud losses. Unfortunately, this would also mean that I would stop all of your sales.

  14. Carla

    I have to say the Baltic states sound a lot like Cleveland. Perhaps Greece, Spain and Italy are going to be like Cleveland, too, with somewhat better weather.

    BTW, corruption and political dysfunction are by no means limited to the Baltic states. Not to be outdone, we have them in Cleveland, too.

    Actually, we’re generous with corruption and political dysfunction in this country, and have spread them throughout the entire United States. Some areas (mostly coastal) tend to prosper with a diet of C & PD…others (mostly in the middle) suffer long and hard. Chicago seems to be an anomaly, smack in the middle and feasting quite happily on a diet that starves so many of its neighbors.

  15. Paul Tioxon

    A nation of 1.9 million has no chance of maintaining social stability in this day and age of denationalization, due to unsustainable sovereign debt to income ratios. The territory that used to support the expats has been over farmed, over indebted, jobless, incapable of supporting human life due to lack of money. Like Oakies with un-farmable dust bowl land, you move onto a territory that is more fertile, holds more promise, such as the orange groves of CA. People have moved from the de industrialized rust belt in America over the past 30 years, and now from the de-nationalized periphery, to the core states. As less and less is available to sustain profitability for the wealthy of the core states, lesser nations will be liquidated, without the means of policy by military means.

    http://www.youtube.com/watch?v=8deSBrufhFw&feature=related

  16. rkka

    There is another piece of this tragedy. Latvia’s birth rate is down over 25% since 2008, and deaths there now exceed births by 1.6:1.

    At the end of “Soviet genocide” in 1992, Latvia had a growing population of 2.65 million and zero foreign debt. There are now about 2.2 million, and foreign debt service is over 25% of their GNP.

    And the biggest issue in Latvian politics is suppressing the Russian language.

  17. mm

    The US is supposed to be one big free trade zone. With the Federal government regulating trade between the states. It’s common here (almost expected) for people to pick up and move 1500 miles for a better opportunity. Latvia joined the EU back in 2004. And has a history of being invaded by Russia. Although the EU lacks a strong federal type political tradition. Could this be seen as the people exercising their right as European citizens to move for better economic opportunity? Is the nation state in Europe now history, and, the governmental model just not caught up with what the people already are doing?

    1. Eric

      exactly, these people are looking for a better future, many of them will build a new life in the country they moved to and are happy they can make this choice in the EU.

  18. Peripheral Visionary

    No mention of the central role of the Swedish banks in all of this?

    I realize that Sweden is routinely considered to be the model child of the European family, but it needs to be pointed out that the “internal valuation” programs carried out in the Baltics were done so at the behest of Sweden, in turn acting in the best interests of its banks, who are heavily exposed to the region. While the Baltics have seen massive out-migration and a loss in the standard of living, the Swedish banks and Swedish economy have done just fine. If that isn’t a model for what is unfolding in the rest of Europe, I don’t know what is.

    1. sasori

      Wonder if the conduct of the banks (and the state) in the Baltic countries is a scandal in Sweden.
      I also wonder about the ‘Swedish model’ of bank recapitalization, it is miles better than what we (in the UK) did with our banks, but did it really solve the problem.
      Aren’t the banks who were insolvent after the Swedish housing bust of the 90′s (who were recapitalized so deftly) the same ones which lent irresponsibly to the Baltic states, thus requiring another bailout(let alone all the misery in the Baltic states). if so, maybe it need some revising.

      re Estonia, there’s a Jeffrey Sommers counterpunch article about Estonia, it dosen’t contradict what @lynx says (bleak assessment it is)
      http://www.counterpunch.org/2011/10/24/destroying-estonia/

  19. Eric

    so first the criticism on the EU/eurozone was that it’s not an optimal currency area, because there is no labor mobility.
    And now it appears that people are moving to areas with jobs, it’s used as an argument to show how bad austerity is.
    It’s never ok.

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