October 2012        

Latvia and Lithuania: a demographic disaster

While a lot of attention is concentrated on the economic and social problems of Ireland, Greece, Spain, and Italy, the Baltic states of Latvia and Lithuania are also suffering terrible problems. With emigration from this country now running at 87,000, the political elite of the two Baltic states have discovered that an effective way to cut unemployment and cut budgets for social services is emigration.
     If enough people of working age are forced to leave to find work abroad, unemployment and social welfare budgets will both drop. This simple mathematics explains what austerity-plan advocates are applauding today as the “New Baltic Miracle.” 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 per cent for public-sector employees. A set of flat taxes on employment adds up to 59 per cent in Latvia, while property taxes are only 1 per cent.
     Neo-liberal policies have de-industrialised and stripped the economies of Lithuania and Latvia, leaving them debt-ridden and uncompetitive. Yet neo-liberal ideologues have trumpeted their property collapse from bubble-level debt leveraging that left their basic infrastructure in the hands of kleptocrats as a free-market success story.
     Twenty years of neo-liberal policy after emerging from the Soviet Union have left the Baltic countries a mess. The people emerged into a world where neo-liberal policies were the global fashion and were enforced by the world’s international financial institutions—and later even more aggressively internalised by Baltic policy-makers themselves.
     Just before the 2008 global economic crisis and the world’s biggest collapses, the financial press was praising the “Baltic tigers” for dutifully imposing rule by bankers. Now, like Irish young people, Latvians are voting with their feet in record numbers, leaving at a rate of roughly 1 per cent of the population per month in an exodus of Biblical proportions.
     Indeed Latvia’s census-takers were horrified when they discovered that the country’s population had decreased from 2.3 million to 1.9 million between 2001 and 2011.
     The situation was similar or even worse in neighbouring Lithuania, where massive emigration, triggered by the start of global economic recession and the collapse of the housing bubble in 2008, now threatens the future viability of this state.
     As the economic crisis intensified, unemployment grew from a relatively low level of 4.1 per cent in 2007 to 18.3 per cent in the second quarter of 2010, with a concomitant increase in emigration from 26,600 in 2007 to 83,200 in 2010. This was the highest level of emigration since 1945 and comparable only to the depopulation of the country during the Second World War. Since 1990, out of a population of some 3.7 million, 615,000 people have left the country. Three-quarters of them were young people (up to thirty-five years old), many of them educated and with jobs in Lithuania.
     By 2008 the rate of emigration from Lithuania had become the highest among the EU countries, at 2.3 per thousand, double that of the next-highest country, Latvia (at 1.1 per thousand). Forecasts for the period 2008–2035 suggest a decline by a further 11 per cent, one of the highest rates in the EU (following Bulgaria and Latvia).
     The 2011 census seemed only to confirm these grim predictions. Demographers proved to have been too optimistic in their previous forecasts (the latest issued in 2010), having overestimated the Lithuanian population by about 200,000. Instead of the forecast 3.24 million, the census found that by 2011 it was only 3.05 million.
     Rarely acknowledged is the fact that by the time of the collapse of the Soviet Union, Latvians and Lithuanians were replacing themselves through natural reproduction. By contrast, today the twin forces of emigration and low birth rate have conspired to create a demographic disaster.
     What of Lithuania’s “impressive” economic bounce-back and its high rating according to the World Bank’s “ease of doing business” index? The argument is that through harsh medicine and free-market policies this “Baltic Tiger” is back.
     Lithuania’s economy crashed by 14.7 per cent in 2009, and there were further contractions in 2008 and 2010 on top of that. And while there has been some improvement, the IMF estimates that its rates will remain sluggish at best, suggesting that probably a decade or more will be needed to return to pre-recession levels of economic activity.
     According to the IMF’s projections, by 2015 Lithuania’s GDP (as measured in US dollars) would remain 12 per cent less (as measured in current prices) than in 2008, with unemployment at 8½ per cent.
     And we need to remember always that the IMF’s forecasts of economic growth seriously underestimate the disastrous social consequences of internal devaluation policies.
     Lithuania almost tripled its level of unemployment, from 5.8 per cent in 2008 to 17.8 per cent in 2010. Although by 2011 it began to decline, to 15.6 per cent, this happened not so much because of the creation of new jobs but because of mass emigration. Public-sector wages were cut by 20 to 30 per cent and pensions by 11 per cent, which in combination with growing unemployment led to a dramatic increase in poverty.
     Various measurements of quality of life and well-being deteriorated even further, showing the prevalence of deep pessimism, loss of social solidarity and trust, and the atomisation 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.

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