Fresh Ideas: Latvia following in Russia's footsteps

Before World War II and the Soviet occupation, Latvia was on a par economically and culturally with nations like Denmark. Afterward, Latvia experienced a gradual and persistent decline. Family farms were decimated, converted into collectives. The infrastructure broke down; there was never any money for repairs. Massive industrialization polluted rivers. Drinking water had to be boiled. Family homes were turned into duplexes for Soviet officers. Latvians were herded into Stalin-style highrise apartments built out of cinder blocks. They were equipped with double metal doors and triple locks, for thievery was rampant.

Once Latvia gained independence in 1991, things improved. Sweden and Germany invested in Latvia. The capital city was refurbished; churches re-established; business began to flourish. Tourism was encouraged. There were cars and property to buy, and people bought. Credit was available and people took advantage of it. All the while, the national debt grew.

Between 2004 and 2007, after Latvia joined the European Union and NATO, its economy grew 50 percent. In December 2007, however, Latvia already had the highest inflation rate in the European Union. Police had to patrol the national park outside the capital because people were "tree raiding" " poaching trees for Christmas. If caught, the fine was 400 Lati, equivalent to $1,000, per tree.

Now Latvia's economy has plummeted. The gross domestic product fell 10.5 percent in the last quarter of 2008. Retail sales have dropped by 15.6 percent; hotels and restaurants by 24.8 percent. The International Monetary Fund has given Latvia a $2.35 billion loan. Together with funds from the European Union and other nations, the loan adds up to $7.5 billion, all for a population of 2.27 million.

Despite the loan, schools and hospitals are closing. My cousin writes that salaries for all employees have been cut 15 percent. Taxes are up 20 percent. People are committing suicide. Unemployment is 10.4 percent, the highest in the EU with the exception of Spain. The average salary of a Latvian who is lucky enough to have a job is 486 Lats a month, approximately $1,382.

Latvians do not trust the government; nor have they any trust in the four parties that form the major coalitions in parliament. Although 10,000 Latvians protested a little more than a week ago, a protest that turned into a riot making international news, it did no good. The prime minister survived by 11 votes on a no-confidence vote that would have forced his government to resign. Several days ago farmers took to the highways, driving their tractors to the capital where they blocked a major artery into the city. They came bearing a coffin filled with cows' heads (Latvians believe in symbolic language) and forced the agricultural minister to resign. The government agreed to a farm aid package worth 27 million Lats (approximately $78 million), but with a corrupt government still in place, people seem to be resigning themselves to misery.

Corruption has been part of the new Latvia from the start. There are many causes, but the bottom line is this: As Edward Lucas, a journalist with The Economist, points out in his new book, "The New Cold War: Putin's Russia and the Threat to the West," "If you believe that capitalism is a system in which money matters more than freedom, you are doomed when people who don't believe in freedom attack using money." Markets should be subordinated to freedom, not the other way around.

Latvians seem to be moving in the direction of what Lucas might call authoritarian capitalism (already in place in Russia) because there is literally not one party in government people trust. Latvians are hoping for an economic Messiah, and my cousin's wife writes me wistfully, "We really like your new president, Obama."

- Ursula Carlson, Ph.D., teaches writing and literature at Western Nevada College.