Autors: Jānis Bērziņš .
There has been a lot of debate on the European crisis and the Eurozone's future. Some pundits wrote about the possibility of an European war and Nicolas Sarkozy even compared a possible Eurozone’s failure with the end of the world as we know it. It is not a surprise that even with competent economists we still have problems of basic economic policy. Paraphrasing one of Bill Clinton’s campaign mottos, “it’s the politicians, stupid.”
The fact is that the economic system’s behaviour is determined at the political level, as nowadays there is no real economic liberalism. Instead, the system is highly regulated to assure it is fair for everyone (or at least it should be).In other words, the markets are not that free to do what they want. They have to follow the rules created by politicians and technocrats. Thus, the root of the crisis is to be found at the political level: it’s all because of the neoliberal version of the good old economic populism, this time boosted by the financial markets and the lack of a credible economic and political alternative to Neoliberalism.
It all started with the establishment of the nation state. Each country, besides being political institutions are also recognized as economic entities. Thus, the concept of political economy in the very beginning was already established out the rivalry of national states looking for the best way to become wealthier. One of the best examples is Adam Smith’s “Wealth of Nations,” which principles British policy-makers applied very effectively when establishing and developing Great Britains’s colonial empire.
This has been passed over to wanna-be developing states making the ideology of development to be connected to the notion of national identity. This explains why extreme right-wing regimes in Latin America, like Brazil, Argentina, and Chile (in a more moderate way) implemented policies of development based on each of these countries national interests, called “national-developmentalism.” It’s not the case here to defend these policies or not, but the fact is that from basic commodities (mostly coffee and sugar) exporter until the 1930’s, Brazil has overtaken Britain as the world's sixth largest economy in 2011. But what this issue of national interests has to do with Europe’s economic crisis? A lot.
The European Union is a mix of well developed countries such as Germany and Sweden with wanna-be developed countries like Portugal and Greece, and third-world countries like Bulgaria and Romania. One of the most important bases of the European pact is that the national interest should give place to the common interest of the union. However, it is not that simples. Although Brussels and its technocrats have a lot of influence in what happen within the European Union, in the last instance, it is the national governments who have legitimation to decide on important political and economic issues. It is easy to find out that it is not the European Commission which is leading the discussions on the European crisis, but Angela Merkel and Nicolas Sarkozy, representing respectively German and French interests, while David Cameron clearly defended British interests.
The first question is that politicians are elected locally. Thus, they are loyal to the people and corporations which are financing their campaigns and, in a lesser scale, to their voters. Thus, although politicians use the rhetoric of an united Europe, etc, what they really care is about their own country.
Germany has been pursuing clear policies of economic development based on increasing the productivity of the real economy. It has understood that first, the level of productivity in an economy depends on innovation and not on the amount of available wealth to its citizens, and second that, if financial market is let alone, it will allocate resources badly in terms of economic development. Latvia is one of the best examples. Germany's economic system has been called “ordoliberal”, where the state intervene in the economy to assure that free market will reach its full theoretical potential. These policies work and... surprise: among others, von Hayek can be considered an ordoliberal.
As a result of the difference of productivity between Germany and the rest of Europe, the Eurozone's problems will continue in 2012. The solution for the crisis chosen by Merkel and Sarkozy aims to produce a recession forcing costs - mostly labour costs - to low with the objective of indirectly increasing productivity. At the same time, Germany will continue to develop increasing the structural gap with other EU countries even more. It's a matter of national interests.
But there is one question then: what about Latvia? Since I've moved to Riga I've learned that national security is the most important political issue, as it encompasses Latvia's national identity and cultural heritage. At the same time, Latvian authorities are still living a fantasy world, ignoring that without economic development it is not possible to guarantee security. Unfortunately, money is very important for security, and for a very simple reason: economic power gives political and military power. Just look to the USA. Ah, but Latvia is a small state. And what about Israel?
The fact is that the Latvia has been neglecting its economic development, making confusion between the state not intervening in the economy with the state being weak. Latvia has been unable to defend its own interests in the international arena. Not for free, we are praised as good “students” by foreign authorities. However, the result is that we are not developing. We do what is in the interest of other countries disregarding our own interests. For example, we are considering privatizing LMT and Lattelekom for Swedish Telia, which is state-owned. If it’s good for Sweden, why we think it’s bad for us? Instead, we should make a campaign to LMT and Lattelekom buy Telia Sonera. After all, it’s state owned thus not efficient. It’s our moral obligation to help the swedes...
However, the problem is not limited only to economic policy, but also to politics. One of the most important questions nowadays in Latvia is the referendum about Russian being recognized as Latvia’s second official language. Notwithstanding the fact that this referendum is clearly part of the efforts Russia has been doing to have the Russian language recognized as one of the European Union’s official languages, the fact that such polemic can help Vladimir Putin to be reelected, and even the extremely remote possibility, but still a possibility, that denying Russian the status of official language can be used as excuse to some kind of aggressiveness from Russia to protect its citizens abroad, a foreigner got permission from Latvian authorities to remain in Latvian territory promoting such a mess. This same foreigner publicly said his aim is to obtain Latvian citizenship. Why do we permit this? Why the state is so weak?
It’s time to stop pretending and to do real things. First, to develop. Second, to stop fooling ourselves with beautiful words and empty promises. It’s time to learn from Germany and other countries that really defend their interests. Otherwise, as immigration statistics are showing, Latvia will loose its sense. Latvia, without its inhabitants, is only a piece of land to be occupied by other people. Do we really care about Latvia? I’m starting thinking we don’t. We just pretend to care.