Re:Baltica investigative journalism research center published today a series of articles on Latvia’s inequality.

The Invisible Side of Latvia’s ‘Success’ Story: Life with ‘God’s Mercy and the Goodness of Others’

The Hidden Side of Latvia’s ‘Success’ Story

Average Income per Family for Top 10% and Bottom 90% of Latvia’s Society

Social Benefits Paid Out by Latvian Municipalities in 2011

The Main Conclusions and Recommendations. Authors of the Project

Aleksejs,

Thanks for this posting. It answers a couple of my questions for myself.

Two more questions:

How did approx. 500 become millionaires in approx. 20 years?
That’s a very large ratio per population.

How can the average person afford approx. 20 Lats to go to a concert?
(Which is what it cost to go to the 810 Mezaparks concert)
That seems a very large proportion of a monthly income.
And there are so many concerts / events to choose from.

How can the average person afford approx. 20 Lats to go to a concert?

What kind of person are we talking about? What’s an average person? If there are two guys: one makes 100,000 lats a month, another makes 100 lats—what does the average tell you? If my memory serves the average salary in Latvia, according to the statistics bureau is about 500 lats a month. So that average person could probably afford spending 20 lats on a concert.

How did approx. 500 become millionaires in approx. 20 years?

You should study up on history of privatization in this country in the 1990s.

” If my memory serves the average salary in Latvia, according to the statistics bureau is about 500 lats a month. So that average person could probably afford spending 20 lats on a concert.”

I’ll take your word for it ... what I have read in the past 2 years or so, is that the average income was about half to three quarters of that figure.
If it has risen ... good; but the cost of (almost) everything also rises (maybe not in the same proportion).
Your posting was uptodate figures.
My readings were as close to uptodate as I could find.

I posted the link to the Central Statistical Bureau page on salaries and wages.

Yes, I saw that. Can’t say that I understand some of the relative figures yet in the social security page.
Much the same happens in Oz ie things are stacked towards the wealthy’s advantage, and the ‘middle class’ carries the tax burden.
Thanks.

Aleksej ~ excellent discovery! Btw, what is your perspective on this worldwide development, as Latvia is affected by global economic events and thus not exist in a cocoon? Do you see the economy as shifting from productive capital to speculative capital (some call it casino capital)? Should economy be regulated so that interest groups do not amass too much power and control because the laws favor the super-rich? How do we avoid another worldwide social revolution – a struggle between the haves and the have-nots? Soviet Union became corrupted because it killed the productive entrepreneurial spirit. The labor unions in US during the industrial revolution eventually balanced the economy against the industrial barons until its leaders, like in Soviet Union, too became corrupted.

Here is a study where between $21-trillion and $32-trillion that is being horded offshore by the super-rich. Had it been used productively instead of speculatively the world may have avoided the current economic crises.
http://www.taxjustice.net/cms/upload/pdf/Price_of_Offshore_Revisited_26072012.pdf

Is it human nature to be dishonest and corrupt? The privatization in the early 1990s and currently in Latvia is not being handled fairly. One had and has to be an ‘insider’ to succeed.

There needs to be a balance between capitalism and socialism; where if you have too much of one or the other it will kill the golden goose that keeps the economy functioning. It is the middle class that keeps an economy turning over and vital. Be forewarned, it is currently being zapped.

Cheers, Ivars

Ivar,

Btw, what is your perspective on this worldwide development, as Latvia is affected by global economic events and thus not exist in a cocoon? Do you see the economy as shifting from productive capital to speculative capital (some call it casino capital)? Should economy be regulated so that interest groups do not amass too much power and control because the laws favor the super-rich? How do we avoid another worldwide social revolution – a struggle between the haves and the have-nots?

I’m no economist. I don’t even play one on TV. I don’t see it as a global development. The Latvian-language version of the article which appeared in print edition of IR this morning specifies that Latvia has always had the flat tax. Those who are close to the powerful benefited the most from privatization, leaving regular Janis Four-Pack overboard. I don’t know what you mean by current privatization. So while you are right that Latvia doesn’t exist in the cocoon, I see some of these problems of Latvia’s own making.

Re: the capital. I don’t see it. The GDP is growing, but largely from increased productivity of the existing labor force. There’s a problem with the banks lending money.

Latvians are unlikely to go storm government buildings in the near future.

Ivars,
” It is the middle class that keeps an economy turning over and vital. Be forewarned, it is currently being zapped.”

In my observation ,in my lifetime, in my part of the world, it always has.
Are you pointing to an even much further anticipated erosion?

I ask ... just how beneficial is the FTC, when we (in Oz) watch so regularly our enterprises bought out by o’seas interests. eg Cubbie Station, north NSW.

How can any country withstand such an onslought of foreign capital?; when the govt is too weak to stand up for it’s known national interest

.
How often does the govt (ie the tax payer) have to bail out the losses?

Russian privatization was the reform consisting in privatization of state-owned industrial assets that took place in Russia in the 1990s, during the presidency of Boris Yeltsin, immediately after the dissolution of the Soviet Union, where private ownership of enterprises had been illegal for a long time. The privatization enabled Russia to shift from the deteriorating Soviet planned economy towards market economy, but as a result a good deal of the national wealth fell into the hands of a relatively small group of so-called business oligarchs (tycoons), and the wealth gap increased dramatically[1]. It was described as “Catastroika”[2] and it was the “most cataclysmic peacetime economic collapse of an industrial country in history”.[3] Many non-industrial assets, most notably, most of the social welfare and telecommunications, as well as strategic industrial assets, including much of the Russian military industry, were not privatized during the 1990s. The privatization of the 1990s is still a highly contentious and polarizing issue in the Russian society, stirring up strong sentiments among the population, including the widespread negative attitude towards Anatoly Chubais, one of the most instrumental figures of the reform, and even calls for its revision.

“Catastroika” is what happened in Latvia too, and prihvatization…............

““Catastroika” is what happened in Latvia too, and prihvatization…............ “

Privatization of the fundamental services, that are the mainstay, underpinning. of any society, should never be privatised ie water, electricity, gas.
Yet it happened in the name of cheaper services.
Now thatr the time for govt subsidiesw have run out (here in WA) the prices have just recently skyrocketted ... 150% increase.
And what can the poor do about it ... nothing!
Does the govt security / pension (in Oz) cover that jump in price? ... No.

As those articles by Aleksejs refer to ... once in the poverty trap, it’s almost impossible to get out of.
As in Latvia = as in Oz, and I daresay, anywhere.
Funny that the pollies don’t feel the pinch.
They give themselves automatic pay / expense rises every year ... but the middle class battler / pensioner / social security receiver doesn’t get anywhere near that in the same % proportion.

That was quick response, Aleksej. Can you clarify your comments?

“I’m no economist. I don’t even play one on TV. I don’t see it as a global development.” What do you see it as?

“The Latvian-language version of the article which appeared in print edition of IR this morning specifies that Latvia has always had the flat tax.” And what about it?

“I don’t know what you mean by current privatization.” Current meaning at the present time. Privatization is an on-going process where government assets: property and certain rights are sold by the government to individuals or legal entities. As opposed to privatization a government may also nationalize by buying up assets and rights.

“So while you are right that Latvia doesn’t exist in the cocoon, I see some of these problems of Latvia’s own making.” For example?

“Re: the capital. I don’t see it. The GDP is growing, but largely from increased productivity of the existing labor force.” Not only are you not an economist, you’re also not a financial person. That may explain the difficulty you are having in understanding inequality of social classes. Capital is a balance sheet item, while GDP covers income type items. Capital will appear on GDP via depreciation, amortization, write-offs, etc. due to wear and tear, obsolescence, etc. This is an area where governments can play favors for business interest groups. For example, some years back, UK allowed 50% depreciation on capital investments (facilities, equipment, etc.) in the first year. It’s time value of money. That of course, reduces the income subject to taxation. If it results in a loss, the loss can be carried back or forward in time to reduce respective annual tax amounts.

“Latvians are unlikely to go storm government buildings in the near future.” What’s your reasoning that Latvians are unlikely to storm government buildings?

~*~

Maris makes a point, “Are you pointing to an even much further anticipated erosion [of the middle class]?” What do you see as stopping it? Robert B. Reich, Secretary of Labor under President Bill Clinton, states that there needs to be a political movement that has strength in numbers with effective leaders. This can be done and has been done in the past.

“I ask ... just how beneficial is the FTC, when we (in Oz) watch so regularly our enterprises bought out by o’seas interests. eg Cubbie Station, north NSW. How can any country withstand such an onslought of foreign capital?; when the govt is too weak to stand up for it’s known national interest” Most governments happily invite investments in their country. Why do you see it as something negative? Governments can, of course, reverse these investments if they find them to be detrimental to their national interests. In the early part of the 1980s, on my watch working for a Fortune 500 Company, India in one case and Mexico in another case decided to nationalize foreign investments whole scale in their respective countries. It called for foreign investors to reduce their ownership to 49% or less in their investments. Then 51% or more of the shares were sold in the marketplace to local nationals in each respective country. This is just an example of what can be done. Of course, there is a risk of alienating future investors, but my experience is that investors have short-term memories.

“Privatization of the fundamental services, that are the mainstay, underpinning. of any society, should never be privatised ie water, electricity, gas. Yet it happened in the name of cheaper services.” It is generally recognized that government services lack the work ethic and quality, and there is considerable waste of labor and money, as opposed to that found in business services. By its own political nature government is not cost efficient. Business is driven by competition in the marketplace and performance necessary to be profitable otherwise it will cease to exist as a viable entity. Its employees will all be out of work. Government has no such incentives and accountability. There is an absence of coherent tactical and strategic thinking as they operate on disconnected policy proposals with political appeal.

Catastroika!

Cheers, Ivars

t is generally recognized that government services lack the work ethic and quality, and there is considerable waste of labor and money, as opposed to that found in business services. By its own political nature government is not cost efficient. Business is driven by competition in the marketplace and performance necessary to be profitable otherwise it will cease to exist as a viable entity. Its employees will all be out of work. Government has no such incentives and accountability. There is an absence of coherent tactical and strategic thinking as they operate on disconnected policy proposals with political appeal.

With respect - that is an ideologues view of markets. The basic notion of business is to produce positive cash flow for investors/owners. That can lead (easily in many cases) to vast corruption, speculation and dangerous decision making. It does not necessarily lead to some paradise of efficient services and wonderful products. How many awful customer service situations do we experience? How many absolutely useless services and products are out there (only created because they produce positive cash flow)?

If you want to see both the dangers of deregulated markets and of speculative capitalism/markets, look at the glorious nexus of California electricity market deregulation and Enron.

Government can be incredibly cost efficient as its basic motivation is to serve the people. No higher calling.

Re: flat tax. Evidence suggests that flat tax exacerbates inequality. Low nontaxable minimum does that also. It means that the tax burden on the poor is higher than on the rich. It means that it’s relatively painless for a wealthy person to pay x percent in taxes than for someone who makes a minimum wage. For example, someone making $100,000 would have to pay $10,000 if the flat tax is 10 percent. Someone making $100 would have to pay $10 under the same rate. $10 means a whole lot more for the low income earner than $10,000 for a high income earner.

Re: Global development. I see it as a Latvian development.

Privatization is an on-going process where government assets: property and certain rights are sold by the government to individuals or legal entities.

Thank you for the vocabulary lesson, but technically, the privatization, i.e. denationalization of the 1990s is largely over. What we have are minority stakes in state-owned companies that may be sold, eg. airBaltic, Lattelecom. Citadele aka Parex is a different story partially because the state nationalized it in 2008 in the middle of the crisis.

Re: Latvia’s problems are of their own making. For example, the government policies that led to the crisis of 2008. No capital gains taxes, no property taxes (except for a small tax on land), high inflation (at its peak it was 17 percent), the policies of the pedal to the metal because the Latvian elite wanted to reach the average European standards of living in 5 years, inflated property market.

What’s your reasoning that Latvians are unlikely to storm government buildings?

Conversations with people. Latvians, I was told, vote by emigrating. They protest by leaving this country to go work somewhere else. Another reason is weak and disorganized unions. There’s not a single organization that is able to organize protests. Yet, another reason is absence of a real left social democratic party.

Ivars,
I’m not an economist either.

“Maris makes a point, “Are you pointing to an even much further anticipated erosion [of the middle class]?” What do you see as stopping it? Robert B. Reich, Secretary of Labor under President Bill Clinton, states that there needs to be a political movement that has strength in numbers with effective leaders. This can be done and has been done in the past.”

Well, here in Oz there used to be a very strong union movement. Poltically it was / is represnted by the Labor Party. The Liberals considered in due course that the unions were running the country and spent 2 decades denouncing the unions .. and vitually drove ito extsinction. The Labor Party has never had the guts to reverse a single step of that process.
In other words, there was (WAS) a political movement, that had the strength in numbers etc.
Nowadays there are the various trade associations ... virtually toothless in effect though.

Was the union movement associated with communism ... of course, incessantly, by the Libs (and I have to agree, partialy true; certainly not wholly true).

““I ask ... just how beneficial is the FTC, when we (in Oz) watch so regularly our enterprises bought out by o’seas interests. eg Cubbie Station, north NSW. How can any country withstand such an onslought of foreign capital?; when the govt is too weak to stand up for it’s known national interest” Most governments happily invite investments in their country. Why do you see it as something negative? “

I don’t necesarily see it as a negative. It depends upon the ‘deal’.
My understanding is that Oz never ‘sells’ any physical’ land - it leases it ... up to 99 years before a renewal of contract.
The point I was trying to make is that the asian consortium that ‘bought’  the property has only one or two reasons: to feed it’s own people (apparently easier to use Oz than improving it’s lands for the same purpose), and to gain a very strong foothold into Oz (ie gives them political & financial leverage)
In the meanwhile , the locals suffer from that deal.

Is the purpose of the FTO to reduce everyone to the lowest common international factor?

“Governments can, of course, reverse these investments if they find them to be detrimental to their national interests.”
Can they—yes. Will they—No ... not until things become so sour to be beyond private interests’ redemption.

“It is generally recognized that government services lack the work ethic and quality, and there is considerable waste of labor and money, as opposed to that found in business services.’

Used to be .. agreed.
Now the govt dept’s have to be accountable as well ... but not in the same sense as private industry.

“Business is driven by competition in the marketplace and performance necessary to be profitable otherwise it will cease to exist as a viable entity.’
Quite true.

I’ve never been a govt worker since being a telegram boy during my school holidays in early high school.

“There is an absence of coherent tactical and strategic thinking as they operate on disconnected policy proposals with political appeal’

Can’t agree in totality with that perception.
Is it not the govt that researches / decides how the state / urban deveopment proceeds?
The 20 / 50 /100 year growth plans are formulated by the govt ... which part of the country / state is developing faster than others, hence the govt has to somehow provide the infrastructure for that to happen.

Whether that actual infrastructure is provided by private enterprise vs govt inefficiency enterprise seems to be your point.

I read your post of several years ago re Latvia Inc.
(Have you read about WA Inc? ... that was a long time ago .. yet the ex-premier (who did time in jail) is still in and out of the courts.

Which system will have the least amount of corruption, or of perceived corruption, I have no idea.

In my part of the world PPP works, on the face of it pretty well; but when when project budgets (provided by private industry) become (ivariably overblown), it’s always the taxpayer that foots the bill; and hence the poor / pensioner does not receive his/her proper annual adjustment to cover living costs.
So they (amongst others) pay the price when things don’t go right.

“But it did.”
‘I think you mean that Russia should keep apologizing, no? “

No ... but where are the reparations for that invasion and the following 50 years of suppression?