By Philip Pilkington, a writer and research assistant at Kingston University in London. You can follow him on Twitter @pilkingtonphil
Most pieces written and published on economic topics in our newspapers are morality tales rather than economic analysis. Economic analysis is boring and thus only a few people are going to read it. By contrast, morality tales pull at the heartstrings like a Hollywood script. They contain words and phrases that most readers can identify with – sentiments that they too have felt, either in the past or in the present.
Without understanding this it is simply impossible to grasp articles such as the one published on the New York Times website on New Year’s Day which depicts the extreme austerity experiment undertaken in Latvia over the past few years as a success. After reading it I initially made my way over to Eurostat to look at the data and see if the facts led to a different narrative of Latvia’s experience with austerity.
Then I realised that this was an entirely pointless endeavour. Much better, I thought, to analyse the article itself rather than the statistics – which, if the reader cares to look into without blinkers will how the information presented by the Times is actually inconsistent with the happy face it attempts to put on Latvia’s exercise. In what follows then I include only details which are found in the original NYT article. We’ll look not at Latvia’s plight but the Times’ narrative to see how coherent it is on its own terms and, most importantly, what it attempts to convey.
The article begins with a story about a man who faced the austerity bravely. Because his newborn son required surgery he bought a tractor and began hauling wood to make ends meet. Quite the imagery, of course. Rugged, sturdy – very Baltic.
This is the theme throughout. Latvia is seen as a country that can endure the pain, whereas countries like Greece cannot. What the author means by this is that in Latvia people have largely accepted the cuts without protest while in Greece they have not. This is conveyed well by the image of the man hauling wood in order to ensure that his newborn child gets the surgery it needs.
What is so unusual about this piece and what strikes the informed reader straight away is that such endurance is seen as curative. As the headline says “used to hardship, Latvia accepts austerity, and pain eases”. The problem is that the piece doesn’t seem to ever substantiate this claim. Sure, there’s the story of a man who fires his employees only to rehire them after the worst of the recession is over, but this is just a story. I’m sure there are similar stories in Ireland, Spain or Greece if an eager reporter were to look hard enough. But when it comes to statistics – you know, the way we generally measure the effects of economic policies – the proof is strangely lacking.
The author starts off by writing that the country experienced a 20% decline in GDP when the austerity measures began. He then goes on to point out that last year the economy grew by around 5% “making it the best performer in the 27-nation European Union”. This doesn’t make much sense at all. If an economy experiences such a significant recession the only way it can be said to recover is by first wiping out the losses incurred during the downturn. In Latvia’s case that would require maybe 15% growth in the first year and maybe 10% in the second. Pointing out that the economy has grown by only 5% indicates a massive failure, not a success – at least, by any normal criteria of measurement. The trick here is to compare Latvia to the other EU countries and saying that it is the best performer. But this is not a real comparison because none of the other EU countries experienced a 20% decline in GDP, so comparing present growth rates is a completely misleading way to decide whether austerity has worked or not.
The article then goes on to say that the budget deficit is down and that exports are rising. On their own these are completely meaningless indicators. Everyone agrees that Latvia’s economic problems were not caused by budget deficits or trade imbalances, so why look at these indicators specifically? The author gives no reason; he’s just trying to make his narrative stick together.
He then goes on to write that the cuts have left 30.9% of the country “materially deprived” (yes, one third of the country are poor!) and that unemployment stands at 14.2%. Again, the author engages in rhetorical tricks to make these numbers appear softer than they are. He compares the unemployment rate with that of Greece and Spain. Looking at past trends, however, and the fact that Latvia is a small export-led economy we’re probably better off comparing it with Ireland whose unemployment rate is around 14.6%. No success here either.
The final piece of data the author presents is the fact that Latvia has lost 5% of their population, mostly young people, since 2008. He doesn’t even try to spin this. It’s a disastrous figure. So, all-in-all the author presents two pieces of data which he himself admits to being negative and two pieces of data that he misinterprets completely. Not much “pain easing” here, as far as I can see.
So, what on earth is going on here? Why is he even writing this stuff? What is the point? He doesn’t come across as particularly austere and right-wing and his style is all “human suffering narrative” as one would expect from the left-of-centre NYT.
Again, the clue is in the language itself. Editors know what people are looking for around this time of year. It’s January 1st, a New Year and many of us are looking forward to shedding past discomforts and embracing new opportunities. The Latvia austerity narrative plays into the former and makes the latter look all the more appealing. We can, in a strong sense, identify with the man who hauls logs to save his suffering child in that all of us have been through hardship and come out the other side.
There’s nothing wrong with this, of course; we all need our fictions. But it is rather primitive. We’re not talking about individual suffering here. We’re talking about the economic management of a country. Latvia has entered a terrible place. It has become a focal point of Westerners’ fantasies and dreams; a place where we project our own economic troubles and rationalise the stupid and pointless policies being enacted by our governments. It has become the embodiment of all the economic pain that we now suffer. To impose this on another, to wrap them so tightly in our own illusions is a terrible thing indeed. As the French philosopher Gilles Deleuze once said “if you’re trapped in the dream of the Other, you’re fucked”.
Nicely done! Just as Iceland has been hailed as a “success” which is now debunked, so Latvia.
When austerity comes to the US, will it, too, be a “success?”
How did the guy with the sick kid afford to buy a tractor i wonder in that NY Times piece if he could not pay for his kid?
He was an architect prior to losing his business. He is also the guy who reopened his business. On thing Mr. Pilkington did not point out here is the large cuts in wages (Krugman’s “internal devaluation”) which have made Latvian exports more competitive. The article in the NYT points to a company which slashed wages by 30%, which is absolutely brutal.
The NYT article points to a rather grim situation in Latvia. Hardly a shining success story.
“none of the other EU countries experienced a 20% decline in GDP, so comparing present growth rates is a completely misleading way to decide whether austerity has worked or not.”
“that exports are rising. On their own these are completely meaningless indicators. Everyone agrees that Latvia’s economic problems were not caused by budget deficits or trade imbalances, so why look at these indicators specifically? The author gives no reason; he’s just trying to make his narrative stick together.”
Umm… Latvia had an annual CA deficit of 23% in 2006 and 2007.
That’s actually a typo. It should read ANNUAL GDP. In Greece we didn’t see the 20% fall in annual GDP. Less than half was the peak. In my defence, the original article wasn’t clear on this point either. And I was writing solely off that. So our NC’s lack of editorial team is at least as good as the NYT folks! And anywaym if you look at the data its clear what both the original author and I mean:
Regarding the CADs. They were pretty big, I agree. But Latvia’s primary problem was a private sector debt bubble. The leverage in the private sector was the primary cause of the balance of payments difficulties. I think the general narrative on Latvia right now is aware of this. Most people chalk the Latvian breakdown as a private sector debt/banking meltdown — like Ireland.
Anyway, in order to get into BoP issues I would have had to talk about the peg they’re maintaining vis-a-vis the euro. Is this relevant to Latvia’s economic problems? Absolutely. But it was not in the scoe of this article. As I said at the beginning, I wasn’t trying to tell the story of Latvia’s economy, I was just pointing out what was wrong with the NYT article. And the NYT article took the line (rightly, in my view) that the Latvian meltdown was bank/private debt related.
Hope that clears all that up.
Have you been to Latvia? I have. Seen the overheating during the boom and the crisis after that.
The case is that Latvia adjusted really quickly after the crisis came. That brought steep fall in GDP and deterioration of the overall environment. But that also quickly increased the competitevness of Latvia – salaries down and asset prices as well.
This means that a lot of capital outside of Latvia started to find Latvia attractive again and that has been on pillar that has supported the economy during the last couple of years.
I think the Spain-Italy-France are facing the same competitevness problem and to solve that you need to decrease salaries or increase productivity. I can’t see the latter happening so therefore we have the current “let’s hide our heads in the sand” and kick the can solution.
BTW, the same applies for US – the average worker in US just cannot compete globally anymore and you can go to QE10 and that would not change a thing in that area.
Yes, we need to lower U.S. (and European) wages) to Chinese levels, then we will be competitive.
In “Happy, shiny” Latvia, deaths exceeded births by over 1.5 to 1 in 2011, and 2012 will hardly be better.
This indicates that Latvian policy has been a catastrophe, not a success.
Latvian economic policy has been run from the grave by the mouldering bones of Andrew W. Mellon, Herbert Hoover’s Treasury Secretary, and the result is tragedy.
On the other hand, Russia’s demographics have improved steadily during the whole crisis, and for 2012, births in Russia will exceed deaths, for the first time since 1992.
I think the main reason the Anglosphere Foreign Policy Elite and Punditocracy loves Latvia and hates Putin is that Latvia’s economic policy favors plutocrats totally, while Putin cuts the people in for a slice.
LOL, KL! Very sad. Perhaps you should first listen to this, including the Q&A at the end:
If France, Italy, Spain and the US lower wages and increase productivity, where on earth are we going to find the markets for decreased demand and increased supply? This is a back-ending of value chains where the most profittable part of the chain is sacrificed by impoverishing the most productive. How exactly do you expect corporations to respond to the collapse in demand and value? By hiring the fantastically cheap labour that results? Governments and business have to be prepared to go down with the ship.
PS What I have problem with are the pictures added to the article – they are overly dramatic, real Latvia does not look like that bad.
In “Real Latvia” births exceeded deaths by over 1.5 to 1 in 2011.
How is that not utterly catastrophic???
This is what happens when you post before proper caffienation.
In 2011, deaths in Latvia exceeded births by over 1.5 to 1.
Births in Latvia dropped ~25% between 2008 and 2010.
Again, how is this not utterly catastrophic???
KL – if anything those pictures are a bit conservative in showing the countryside of Latvia. Where 10 years ago we had occupied homes, today we have vacant buildings. Hospitals and schools have closed. Some of it makes sense, much of it has destroyed communities. My own friends and family in the country lead sad lives. Look at http://www.rebaltica.lv/en/ for a bit more reality.
Philip, thank you for your analysis of this article. When I read this in the am, I was dumbfounded. I disagree with your sentiment at the end:
The New York Times has turned into a propaganda mill for the rentiers. It may be a Christmas story, but it’s the Christmas Carol in reverse. Dickensian. Shut your mouth and eat your gruel. The left is the enemy, not those who slash survival scrip.
Sorry, my computer stuttered. The article also says resistance is futile. From the article:
Largely absent are the leftist political forces that have opposed austerity elsewhere in Europe, or the RIGID labor laws that protect job security (like the job-sharing rules in Germany?) and wage levels…Other European countries “should not miss this point,” said the prime minister, noting that the “debate in Europe often goes the opposite way: that austerity destroys growth.”
“What can you achieve in the street?” said Peteris Krigers, Prez of the Free Trade Union Conferation of Latvia (which I imagine is NOT a Union, rather part of a privatization cartel using the word “Union” to obfuscate). Organizing strikes, he said, is nearly impossible. “It is seen as shameful for people who earn any salary, no matter how small, to go on strike.”
The propaganda serves to normalize deprivation and (as Krugman intimated in one of his columns) to get the masses ready to be replaced by high productivity robots. Open the workhouses and debtor’s prisons!
“The New York Times has turned into a propaganda mill for the rentiers. It may be a Christmas story, but it’s the Christmas Carol in reverse. Dickensian. Shut your mouth and eat your gruel. The left is the enemy, not those who slash survival scrip”
And at least “the virtual Tea Party of the left” has not successfully primaried any rentier democrats, as Peter Baker reports in today’s New York Times, which gives President Obama more room to maneuver, than has Speaker Boehner. To face our real problems, like looming deficits and unsustainable entitlements.
The New York Times will try anything to avoid reporting that fixing our broken for-profit health care system and growing the economy/jobs would lead us to long term surpluses. The beatings must resume. Peter Baker on those takers on the left:
Did you read the Latvia article? Are you willing to take a 50% cut in pay? Are you in favor of rooting out fraud in Medicare, a government program that spends about 2% in administrative costs as opposed to private insurance, which pays huge administrative costs and their stock prices go up only if they limit the number of claims they reimburse (there’s a metric for that)? Not saying there is no fraud in Medicare reimbursements, but geez louise, didn’t you ever hear of multiple cost overruns on Boeing hardware that was outdated from the start? Let’s root out all fraud.
You’re agreeing with my point. Bring back workhouses and debtors’ prisons! I’m certain that privatizing those institutions will cost less (LOL).
BTW, I must have a New Year’s eve hangover ‘cuz I don’t understand either your sarcasm or your earnest position.
Even the 14.2% unemployment figure may be the result of Eurostat people cooking the books last year. See Krugster today:
Latvia experiencing 5% growth after a 20% contraction is a bit like two friends who gain weight and decide to go on a diet. The first friend, after gaining 20 lbs goes on a “conventional” diet and loses 5 lbs. The second friend, havin gained 50 lbs goes on a crash diet that makes him lose 15 lbs in the same time period. The second friend teases the first “I’ve lost 3 times as much weight as you”, too which the first friend replies “Yes, but you’re still 20 lbs more overweight than me”.
And in economic recoveries, just like in diets, the real proof is in the long run. Will Latvia keep on growing by at least 5% a year for the next few years ?
Yes, its not clear that they will maintain growth. Their current account fell back into deficit last year. That means it will be a net drain on growth, rather than the boom that it was after the austerity measures (when they recorded an amazing 8.6% surplus!). This may have been a short-run FDI boom that will dry up quickly. But we cannot be sure yet.
I still consider Latvia a failure even if it did maintain 4-5% annual growth rates and 14.2%ish unemployment rates. But it may deteriorate yet.
I don’t laugh out loud too often* when I’m reading the printed word, but I have to admit, that last sentence got me. Shocked me.
Man, to burst into a chortle alone. Always a strange thing.
What happened was, I didn’t pick up “you’re f+cked” with my peripheral vision. And I went into the sentence pretty innocently, my thinking at the time was, scattered and oblivious …
…hmm… should I take issue/umbrage with my comment? Did Phil really call the Bush lovin’ NYT center-left? Now, what are the three capitals of the Baltics, again? Riga, Vilnius, and…da…Riga… French philosopher? Is that an oxymoron?
So by the time I got to “the Other,” I wasn’t paying proper attention, and I must of had the finish mentally pre-filled with some bathetic sh+t like, “if you’re trapped in the dream of the Other, Grasshopper, the way to Nirvana is slammed shut!”
Too dumb (but hence, too funny). I blame Christmas. Must be the recent flood of Hallmarks.
*Early DeLillo, Catch 22, and Toles are about all that’s ever got me howling. Yup, Tommy Toles, the genius cartoonist from the capital of political comedy, Buffalo, New York.
More to the point why did the Irish economy blog link this rubbish.
Perhaps it was to throw rotten meat & bones at the Dorkish trolls so as to grind their false teeth on.
Perhaps to state to us that yee never had it so good – yee filthy animals.
I scanned the comments to see if anyone commented on Exit which is a viable alternative to Loyalty or Voice. If the unemployed in the US would self deport to Mexico we could enjoy the massive benifits of austerity.
This so called bailout that Latvia received was not for Latvian people, but for foreign banks. In 2008 the largest Latvian bank – Parex – failed. Parex had borrowed money in two large syndicated loans from a number of foreign banks. The IMF and EU legbreakers then insisted that Latvia make good on the foreign liabilities of Parex. As the Latvian state did not have the money, the money was borrowed under “bailout”.
Now stories are planted into newspapers to justify such IMF programs that amount to robbery of common people. This prepares the ground for more such “help” to come.
Honestly, this is classic NYT. They may be centre-left on social issues, but on economic and foreign policy matters they trend to the same neoliberal, imperialist mindset which pervades mainstream American journalism.
The problem – which you adequately dissect – is that the language in question is similar to that used whenever they appeal to truly human concerns. We’re left with the expectation that the writer really does care about that man hauling wood, and just thinks that austerity is the best solution among a list of bad ones.
Much akin to the Democratic party’s political strategy, the assumption is that we need to embrace these ‘tough’ decisions even if we may not like them, because the alternative is worse. Any sort of actual argument from the left is discarded as naive and impractical, and thus as time goes on we find it easier and easier to accept free-market ‘solutions’ even as we watch them utterly fail.
I’m glad I wasn’t the only one who thought the definition of “successful austerity” was hardly evident in the NYT article.
Like Mr. Pilkington, I was stunned to see that 5% of the population had left the country. If they had remained, would the unemployment rate be no better than in 2009?
It seems quite possible that those who have emigrated included entrepreneurs and high-skilled workers who could find employment elsewhere. I am speculating, of course, but massive emigration may relegate Latvia to a generation of lost human capital that will lower growth capacity for decades to come.
Not trying to be a d**k. Just trying to understand. Why is it ok for South East Asian countries to go through austerity (prescribed by Western countries) more than a decade ago (with pretty successful results, I’d think) and yet when it comes to Western countries said medicine is said to not work?
Am Latvian. It is surprising how people behave like experts without the expertise. I would not risk to judge that easy-handed about other countries, basing on few figures.
First you fall into trap by taking one figure and thinking that this is something absolute. “Their GDP fell per 20% and rebounded per 5%. This is absolutely no success”. Latvian economy in 2008 was OVERheated. In 2004 – 2008 we lived on loans, thousands upon thousands of people lived on this – selling and buying increasingly expensive property or finding jobs in ever increasing state administration sector. Our economical growth back then was imaginary. We fell from this imaginary shelf down to earth. Now we stand with feet on ground and our GDP grows on increase of local enterprises and export (lately also inner consumptions grows) and not foreign loans or foreign investments.
Next trap: thinking that austerity was reckless cutting of everything. Nope. Cuts were directed at increasing the competitivity of country. Before we had one of largest state bureaucracy sectors per capita in world, now we are on medium level. Huge number of state employees were released, number of state institutions decreased. This was absolutely painful for all people involved (including me), but this allows now to decrease the taxes, lots of well educated people from the state sector were forced to start their own enterprises. Like me. We simply could not not continue to live like this, we don’t have oil and diamonds, as Russia. Or EUR, like Greece.
Next trap: thinking that mass emigration from Latvia was started by austerity. Nope, wrong. It started when wealthy European countries opened their job markets some years earlier. Why should one work in Latvia as chief of police in 100k city per 1000 EUR/month, if you can easily get a job in UK and gather mushrooms per 1500 EUR/month? Crisis increased emigration approximately 2 times. Painful – yes. Could we avoid this in EU with its open job market and generally high income level? No – this was our geopolitical choice, and you know that most choices in life are not easy.
Am fed up with the bleaky pictures showing only grit and poor people in Latvia. This country is not rich, but it is also not THAT poor. Neither in 2008, neither in 2013. If one wants to show a country as hellhole, he would easily bring a collection of terrible images also from France or United States – and if one wants, he can represent Haiti or Eritrea as true paradise full with exclusively happy people. Simple as that. The same about interviews. Some time ago BBC was taking interview in Cesis town, Latvia – local people were amazed how all the positive things were cut out from the interviews leaving only the negative ones.
Don’t turn also a blind eye on positive numbers, selecting only the bad ones. Birth rate in 2012 improved. Fastest GDP increase in EU was achieved even with the loss of emigrated people. Fastest increase of export in EU. Record number of newly established enterprises, record profits for many existing enterprises. Decrease of taxes, e.g. income tax. Decrease of budget deficite from 9% in 2009 to less than 2% (e.g. less feeding of banks with our tax money). This is not paradise and we are not happy with everything, what’s going on, but current opinion polls show that people have better future expectations than anytime in the last 6 years.
Sure, you have your own agenda, when making these articles. May be you are against austerity in other countries, e.g. USA. Who knows. But is this a good reason enough to distort the truth about other countries?
This is by far the most logical and best argued comment.. this is somebody who lives in Latvia, has lived the issues and experienced everything first hand. Like it or not – Latvia is a success story and will continue to be so. Both NYT and the author of this article have little understanding of the real situation and they have only pulled a few numbers and claimed that their opinion is the right one. The author of this article is just trying to strike down the NYT article as being leftist emotional and lacking facts when he himself is just cussing out everyone who disagrees with him and does not really provide a very good alternative analysis of the situation. The guy from Latvia did it best.
It seems that there are worst at Latvia, for a lot of people.
“The data from the Latvian Ministry of Welfare shows that, even in the roaring, pre-recession years, the number of people living in poverty was increasing. This happened despite the overall growth of the income bubble and low unemployment. From 2004 to 2008, the poverty index in Latvia increased from 19 to 26 percent and was one of the highest among EU countries. That means that income growth was unequal. The Gini coefficient, which measures income inequality, is the highest in Latvia among all EU countries.”
Ah, but don’t you see – having the highest Gini coefficient among all EU countries is the very definition of a ‘success story’ to many.
For what it’s worth, I do feel bad for the Latvian above who seems to have taken this article as a slight against Latvia, rather than one against austerity and similar economic measures. Do not worry, friend. Latvia still has quite a ways to go before reaching the US in its level of income inequality.
Fantastisks komentārs! Cepuri nost! Respekt i uvazhuha!
To my colleague – Latvian. E.g. Wondermondo.
I am also Latvian and remember such things as complete lies to the world about growth in so called over-heated period – when Gov of LV put social budget into main budget, when LV started building of most expensive bridge in the world, and also most expensive library in the world. When ignored any advises from world bank and other organizations and even countries who same time managed to save money reserves for crisis that later came. Read about Latvia’s crisis in Wikipedia – unemployment, GDP drop year by year in 2008 and 2009, inflation figures, current account figures etc. Or read Krugman’s blog about “success story of Latvia”. Also I do remember “maximum speed” economic politically driven psychology with impossible greed of government workers probably alike Wondermondo (who claims to have been working in gov sector before had to move to private sector) who same time covered themselves with smart employment agreements that granted security from being fired or salary reduced. Who didnt somehow see how banks were “raping” Latvians leaving crediting without any control, when You could borrow 50 times more than you could ever return. And that happened because from one side there were unprepared for such boost post-soviet-union-living people and from other hand politicians were promising “7 years of economic boost and happiness”. Something similar to Greece gov guys..
Saying that “cuts were addressing to increase competitiveness” is just bulls**t, cuts were addressed to teachers, policemen, social unprotected people including pensioners, gov low level employees who werent protected by these smart security employment agreements. They simply took away unemployment social security, so called “mother’s payments”. The state institutions werent reformed or eliminated, they just changed their names, united several of them into one, released small amount of people which in fact gave small result – those high level managers with up to 10 times bigger salaries remained untouched. You could also see biggest data leakage facts from Latvia’s history when so called hacker NEO published these reports. I am pretty sure this positive thinking Wondermondo was one of them who were published. Otherwise I dont understand motivation of lies published in his comment.
Next – of course people started to travel around, study and work in EU after Schengen Area opened but political corruption and unfair attitude increased emigration dramatically. Now these are more than 300K Latvian people living and working for other countries. If my colleague Latvian cant combine emigration figures with our government’s attitude before, during the crisis and “so called after crisis despite it continues” then I am sorry about him/her. One more thing – demography. There are even estimates that after 20 years Latvians will loose their country as rates are growing with minus. And that again is related to one of the unfriendliest places for business from tax pressure to entrepreneurs / businesses in the world.
People of course massively re-register themselves from employees to micro-enterprises since that makes less payment in taxes and that is probably mentioned by Wondermondo “an increase of newly registered enterprises”.
The truth is that people don’t believe their government, politicians any more. People who stole country are still free, courts delay any movement with main cases that would increase belief, patriotism to stay in their country. Person who is responsible for biggest bank affair (Parex) is sitting in EU Parliament. What can You say more? People dont believe they will get their pensions at all during their lifetime. Social systems are not getting better. Austerity in reality is put on lower class people, rich still drive their extra expensive cars, win gov purchase tenders and reforms happen slowly.
I do agree that austerity was necessary after living in fairy tale otherwise country would default and that would be worst scenario ever. However luxury taxes, real estate taxes, royalties from rich people savings and many other logical things werent implemented and some of them arent implemented even now and austerity touched the unprotected part of LV people, in most of the cases people had no savings at all if anyone from USA or Western Europe understands what means “not to have any savings at all”. So
I find that New York Times article is complete PR for IMF. And do agree that Latvia is not a success story at all.
How can you get out of muddy hole, with digging it bigger? I do not understand, what plan has Greece and other countries. They are all overpaid! As Latvian in Latvia, I feel now much better then back in 2005-2006, when the times for Latvia economy were considered great. That is what matters! You speak about poor in Latvia. Try to find a decent employee! If you are ok with your head, you have no problem to find a job in Latvia. Those who have highest education, normally have at least several offers, if they are in search of a job. Jobless are only those who better prefer to live on the government’s niko or those who are employed illegally.
This article and others speak about terrible drop of GDP, but who has actually looked at, what were the growth rates before crisis? For four years they were growing with rate of 10% and above. Is that normal development? Every single idiot could open a firm and run it. In those conditions it was impossible to fail. To earn, you needed no brain in Latvia. As an employer I could not find new workers to substitute those, who left. In 2006 and 2007, in both years I had to increase wages from 20% to 30% to keep the work force. Is that normal? My employees were buying cars that costed twice as much as mine!!!! That was the problem – everyone in little Latvia wanted to live the American dream in a very short time. The crisis put everything in its places. The 20% drop in GDP first of all, was a leveling out of our economy after disbalanced growth during 2004, 2006, 2005, 2007. This is something that every one, including the Nobel praised Krugman, is failing to see.
Then, concerning departing Latvians. During the Sovient regime none could travel, none could move and live elsewhere. Life sucked big time! After Latvia break away from Russians, everyone wanted to live in a Hollywood movie. I remember my self back in 1997, when I entered University – I was 100% sure that first thing I do, after I get my degree, I move away from this little depressing country. The only thing, what kept me here in Latvia, was a lack of courage and then, at that time, not that good English. Keep in mind that Latvia was poorer then any single country in the left from our border. When back on 1990somthing, Latvians were allowed to travle to EU with no visa, many fled our country. When we joined the EU back in 2004. Latvians were allowed to work in EU countries legaly. Again many fled the country. And than after 4 years we got hit by crises and again some 5% fled from Latvia. So what is a big deal. When Latvia will becom a better place to live, some of the fled Latvians will return as well as people from other countries will view Latvia as a possible place to live. It is a free market, we are living in. Those who thing, it is better to live elswhere, they do so. When the time will come, there will be people, who would prefer to live in Latvia.
As a Latvian I am proud to live here and I am proud what Latvia and its government did. We have a stable and growing economy now, while other countries in EU are falling. More there are countries as Greece, which hesitate to put their fiances back where they should be, the better for Latvia and Latvians it is.
I am Latvian. This is the best government that we have ever had, even though it could be much better still. They are missing on a very strong opportunity which is good political and trade relationships with Russia. The New year TV address of the Prime Minister perfectly demonstartes the unwillingness to accept the realities of the country’s geographic positioning. It’s too early to talk about success. Such talks are very annoying for the poor families in Latvia for whom 5% growth changes nothing.
I am from Poland (Latvia’s close neighbour and a country that is also in a group of Emerging Europe (EE) and share the same traits to Latvia and other EE countries). Although I have generally progressive world view I almost fully agree with comments by ‘Latvian’. Touching few points below.
Emigration. All the countries in EE ‘suffered’ the emigration after the joining EU and esspecially after 2 year grace period of free-flow of labour. Poland with it’s population 38M for example had roughly 2M emigrants, most of them to UK & Ireland. Interestingly enough at the same time the work migration to US almost halted. I’d like to think that EE countries could make such policies that those emigrants wouldn’t migrate and stay with their family & friends. But the truth is that if you were a doctor in Poland earning $800 per month and you could earn 10x as much somwehere else adding all the blessings of cheap airlines connections sprouting everywhere, it was no brainer. Same for most of the young people who could get a jobs after University for $500-$600, if the could get one at all as the Unemployment was rather high. Polish economy was just not developed enough to provide work for all the new graduates and esspecialy work that was aligned to their skill set and provided the way of life they wanted. I think with exceptions to some countries like Slovenia and maybe Czech Republic this EE pattern was universal and had nothing to do with specific policies but was structural & economic in its nature. Now after all the years of EU structural funds flowing to us it has changed, we are really in far diffrerent position now than in 2004. I saw somewhere on this site sombody mocking the Nobel Prize for EU, I would be the first one to defend it.
Latvia. Being an economist & working in finance I was amazed at how quickly Baltic Trio, Latvia included, was growing for couple of years it was GDP % change that dwarved even China. All the neoliberals in Poland were atributing it to flat taxes and lax labour laws (as always by the way). I went for a holiday in Baltics on a cold May of 2007 :). I was suprised at the cost of living there and of the apartment costs in Riga (Latvian capital) as how quickly it was being renovated, very beutiful city by the way, and the lavishness of the summer houses in Jurmala and the cars that roamed the streets not to be seen in say Gdansk Poland at that time. It struck me that we did not see such a huge development in Poland but at that time I did not connect it to our quite conservative monetary policy and it seems quite lax one in Latvia. We were at best growing 6% and 4-5% on average. But at the end we did not experience such a huge property correction nor unemployment. I do think ‘Latvian’ is correct with stating that those were absolutely stellar (negative) years from economic sensibility perspective, probably driven by credit flow from Swedish banks if I am not mistaken.
So Latvia did embark on a 2nd so called shocked therapy which Poland did only once in ’89 after the Soviet bloc collapsed. Hopefully we had less Bentleys on the streets through all those years but more sensible Central Bankers. Coming back to Latvia I think you can do as they did – adjust quickly – and granted its far away from reaching the GDP of 2008 (since it was artificaily fueled) or do as Spain and Greece is doing and prelong the pain. Being fair to Greece and Spain of course they are in ill designed euro-zone with EU authorities and politicians unable to act quickly,sensibly, reasonably and with a tint of solidarity. This is tragedy of those countries in far higher extent then their own local policies I presume. But again if I were in a country I would much rather prefer quick shock therapy and than growth, slower ableit one, than ever creeping gloom.
Not so bizarre, when one considers NYT’s growing presence of corporatist dirt on its knees.