Latvia is poor because they don’t give it money because Latvia is too poor

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Regular supervisors have arrived in Latvia with accusations that Latvia’s economic development is lagging behind and brings shame to the Economic Cooperation and Development Organization.

Latvia’s poverty is relative, because many countries in the world and their inhabitants are on average poorer than Latvia. The Organization for Economic Cooperation and Development, which found Latvia lagging behind (Organization for Economic Co-operation and Development, OECD) unites 38 countries that mutually recognized each other as the most developed, richest, smartest, etc. among the 193 member states of the United Nations.

Latvia has been counting its compliance with the status of model countries since July 1, 2016. The organization has existed since 1961, but its newest member is Costa Rica since 2021. When Latvia joined the OECD, Estonia was already ahead there since 2010, while Lithuania joined the organization in 2018.

Latvia loses in the competition of the Baltic states

Comparing the three Baltic states is a common activity both in these countries and among those who observe us from near and far places. The OECD also follows this tradition and has prepared a chart that shows the pace at which the standard of living in each of the Baltic countries approaches the average standard of living of the OECD member states.

These curves require several explanations, additions, comments. The figures shown graphically were calculated by dividing the countries’ gross domestic products by the respective countries’ population and adjusting the resulting amount of money according to its purchasing power in 2015. The first impression of the curves is that the OECD councils have not helped any of the Baltic states to increase the pace of economic development compared to the time when the Baltic states were not in the organization.

The relatively long time in the OECD has not protected Estonia from the decline of economic indicators in the last couple of years. In Latvia, no development breakthrough appeared in connection with the year 2016 either. On the contrary, the OECD criticizes that the pace of economic convergence in Latvia started to decrease even before Covid-19 and the war in Ukraine, which are used as universal excuses for a slowdown in economic growth.

There is little or no growth in the entire OECD, but Latvia is unable to use this situation to increase its achievements relative to a lower base. It is likely that recently the situation has become worse than described in the OECD analysis, which does not use 2023 data. The OECD cannot be blamed for this, because the Central Statistical Office has not yet completed the electronic census of people who lived in the country in 2023.

The road to hell is paved with good intentions and advice

Economic development reports and recommendations of Latvia are prepared by the OECD and sent to Latvia together with the delegation every two years. The OECD delegation in Latvia stayed for several days in order not only to present their opinion and instructions, but also to listen to comments from the Latvian side, including objections. On this occasion, the speech and conversation of OECD economists Robert Grundke and Enes Sunel in the National Economy, Agrarian, Environmental and Regional Policy Commission of the Saeima, which was joined by other members of the Saeima, was referred to.

The OECD emphasized the undisputed finding that economic development requires money, commonly known as investment. So for money that would allow you to earn even more money. The only question is how to get such money and what will guarantee that investments will bring profit and not losses.

The OECD’s recommendations for obtaining money do not sound very convincing, and they could even be recognized as contradictory. On the one hand, the OECD calls for an increase in taxes so that at least the country gets money for investments in education and medicine, the relatively low levels of which have been identified by the OECD as significant obstacles to further economic development.

However, the OECD examines the excessively high tax burden on labor, or remuneration for work, especially for lower-paid workers, as another obstacle to development. The tax burden should be shifted from wages to property, to fuel, to alcohol and tobacco.

The question, however, is whether people will really not understand that in that case they are made into postmen who have to take the money received from employers either to the state immediately or through artificially increased prices for entrepreneurs who are made to be auxiliary staff of tax collectors? In that case, won’t employees ask their employers for future salary supplements to offset tax payments? Will entrepreneurs be able to meet these demands without tax avoidance schemes?

One should also look with disbelief at the collection of increased rates of real estate tax, which the Latvian state cannot cope with already. Latvia is full of guesthouses whose owner is the only guest; rich people endowed with more imagination have declared a library in the middle of the forest or their residence in a barn. So, in buildings for which lower taxes are to be paid, because this way entrepreneurship, charity, etc. are promoted.

For the time being, not paying taxes on real estate is a privilege of the rich, but scheming with properties can become a mass passion, if the real estate rate hike will be accompanied by tax breaks for the only housing, for the correct design of which people will fictitiously divorce or marry, give away the properties and then try to get rid of them.

There are more courts, less money

OECD representatives were, of course, in favor of everything good and fair. If the fight against the shadow economy needs to strengthen control and repression, then let the state do it. But – why should people invest money in a country where there is control and repression at every step?

It turned out that one of the previous OECD advices was to create a specialized Court of Economic Affairs to be able to catch abusive borrowers and thus encourage banks to lend. Now there is a court, but there is no crediting.

In the new version, the OECD calls for action not against bank customers, but against banks. Namely, the need to authorize the Competition Council to expose the banking cartel, which has agreed to demand the highest OECD credit rates in Latvia and not to issue loans to those who cannot or do not want to pay these rates. The question here is whether the bankers really had to meet and agree on rates and other lending conditions. Maybe they act in the same way without any arrangements, just like people either open umbrellas or run into shelters when it rains.

Members were interested in the OECD’s opinion regarding the establishment of a state-owned commercial bank as a tool for creating competition. The answer of the representatives of the OECD was tentatively negative, recommending to first inquire whether other countries have done well with state banks and why the state financial institution “Altum” is unable to create any competition for banks.

How the country should properly manage its companies

OECD representatives said that the organization has given up on the demand to privatize all state enterprises, including local government enterprises. However, these companies are suspected of using unfair advantages, hindering the development of private companies. Therefore, the Competition Council and other state institutions need to keep a very strict eye on these state-owned companies. The question is whether the strictly monitored companies will no longer be companies, or will essentially become (but perhaps already have become) budgetary institutions.

The OECD recommends transferring the management of state-owned enterprises from line ministries to the State Chancellery or a special administrative institution, so that the state’s industry policy does not interfere with the achievement of the company’s commercial goals. This was said in the same broadcast as criticizing the banks for achieving their commercial goals, courses crowned by profits, precisely by limiting lending and the composition of customers as much as possible.

It is also not a banking conspiracy, but a calculated reaction to the state-imposed AML (Anti-money laundering – for the costs of preventing the legalization of criminally obtained funds. AML costs are low and profits are correspondingly high if banks are engaged in servicing resident current accounts, which no longer require employees, but only a computer, and lending to some large state-owned enterprises.

The OECD’s recommendations to members of the Saeima, but a little earlier also to ministers, trade union and local government leaders and perhaps other activists, corresponded to the opinion that it is better to be healthy but rich than poor but sick. However, this kind of knowledge also stimulated the exchange of ideas and left hope that the politicians and civil servants involved in them would not make too absurd decisions in their work.