No People No Problem: The Baltic Tiger’s False Prophets of Economic Austerity

Published on Global Research.ca, by Prof. Jeffrey Sommers and Prof. Arunas Juska and Prof. Michael Hudson, December 7, 2011.

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? … //

… 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? (full text).

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