No Strangers to Economic Hardship, Latvians Accept Austerity

Yesterday, The New York Times ran a piece on Latvia’s experience with austerity and the lack of serious opposition to budget cuts and salary reductions. While so-called “austerity” has been greeted with protests in Greece, Italy, Spain, Portugal, and the U.K., in Latvia the response has been different:

But in Latvia, where the government laid off a third of its civil servants, slashed wages for the rest and sharply reduced support for hospitals, people mostly accepted the bitter medicine. Prime Minister Valdis Dombrovskis, who presided over the austerity, was re-elected, not thrown out of office, as many of his counterparts elsewhere have been.

The cuts calmed fears on financial markets that the country was about to go bankrupt, and this meant that the government and private companies could again get the loans they needed to stay afloat. At the same time, private businesses followed the government in slashing wages, which made the country’s labor force more competitive by reducing the prices of its goods. As exports grew, companies began to rehire workers.

The Latvian government’s economic program has yielded positive results; Latvia’s unemployment rate has fallen (though it remains high) and GDP growth rate has remained positive in all quarters since 2010, something that cannot be said of Greece, Spain, the U.K., Italy, or Portugal.

This is not to say that Latvia is without economic problems or that Latvians are not enduring tough times. A chaplain interviewed for the article remarked on the lack of opposition to austerity in Latvia, citing the acceptance of hardship:

“It is really shocking,” added Mr. Calitis, who runs a soup kitchen at his church in Riga’s old town. Latvians, he said, “should be shouting in the streets,” but “there is an acceptance of hard knocks.”

Latvia has certainly had plenty of those, enduring Soviet, Nazi and then renewed Soviet rule, learning that discontent is best kept quiet. After Moscow relinquished control in 1991, decrepit Soviet-era plants shut down, gutting the industrial base. The economy contracted by nearly 50 percent.

Latvia’s history of oppression and its lack of an influencial and organized labor movement make it a unique place to look for lessons of austerity, as was noted at the end of the article:

But Latvia’s high pain threshold and unusually open economy set it apart, enabling a relentless squeezing of wages, said Morten Hansen, head of the economics department at the Stockholm School of Economics in Riga.

“You can only do this in a country that is willing to take serious pain for some time and has a dramatic flexibility in the labor market,” he said. “The lesson of what Latvia has done is that there is no lesson.”

For lessons on European austerity one doesn’t have to look just at Latvia. Estonia and Iceland both provide examples of how planned and unplanned short-term pain can benefit economies. 

Mercatus Center economist and Reason contributing editor Veronique de Rugy spoke with Nick Gillespie about European austerity in May last year:

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  • Delroy||

    Is't Latvia where Dr Doom is the supreme leader?

  • Delroy||


  • ||

    You're thinking of Latveria. But close enough.

  • Tim||

    Don't mess with Dr. Doom.

  • ||

    The lesson of what Latvia has done is that there is no lesson.

    Um... no. The lesson is that the inability of the typical populace to take its medicine because it tastes so bad leads to unnecessarily prolonged sicknesses.

  • BakedPenguin||

    Riga's Old Town is very pretty. Anyone visiting the region should consider a day trip.

  • Drave Robber||

    I live in Latvia and I regret to inform you that this NYT article is full of male bovine excrement. There has been no real austerity here, just talk of it to hide redistribution.

    the government laid off a third of its civil servants

    This is a lie. The number of civil servants has decreased by about 20% (not 33%) since 2008, mostly due to attrition (no new hiring) and creative re-classification. Laid off? Most probably few dozens of people.

    I don't even want to touch the rest of the article with a barge pole.

  • ||

    Damn it, DR. Next you'll be telling us Estonia isn't as sensible and responsible as they're made out to be either. I was so hoping beautiful Estonia would turn out to be a good expat option.

  • ||

    Well, Tallinn had the highest per cap murder rate in Europe at 7.3. The are known as the Bitter Clingers of the Baltic.

  • ||

    Speaking of Tallinn, this Swedish movie is hilarious,

  • ||

    Ha. That looks cute. The Estonians I met were pretty tired of the trash of Europe coming to their city to party and troll for women. They are a good looking people, admittedly, so I can see the draw.

  • ||

    Well I don't know if I'd call it cute, pretty dark, dry humor.

  • Killazontherun||

    The sexiest city I've ever been to is Lisbon. The language is so horrible on the ears though even the most gorgeous woman comes across sounding like Mac's mom from Always Sunny.

  • Drave Robber||

    Another Swedish movie wasn't nice at all:

  • ||

    That is surprising. When I was in Tallinn earlier this year it felt extremely safe. I wonder if they are mostly gang related?

  • ||

    My Swedish friend said it was because Finns are violent. But yeah, it doesn't feel unsafe at all.

  • ||

    The Finns are known for taking the ferry over to stock up on cheap booze and cigarettes, which I did witness in action. I would too. Helsinki is shockingly expensive in comparison.

  • Drave Robber||

    Depends on what you plan to do. Most Westerners who have tried small business in the Baltic states have regretted it, especially restaurant owners (inland revenue and food safety authorities are corrupt and unpredictable). I (sort of) know one guy who owns a bookstore here, and he seems to do well, though.

    If you don't need to interact with authorities (e.g. if you plan on writing a book), Estonian islands might be a good option. For all their weirdness rural Estonians are nice.

  • Drave Robber||

    And yes, Estonia is a lot better in most aspects than Latvia or Lithuania. Sucks but true.

  • ||

    Minimal interaction with authorities is always good advice.

    I've heard good things about Tartu as well.


    Drave Robber| 1.2.13 @ 2:08PM |#

    I live in Latvia how hot ARE the chicks?

  • Drave Robber||

    A matter of taste, perhaps. Hot enough for me :P

    We've got shitty weather, though, so no lots of opportunity to ogle on streets.

  • ||

    Is the "5% have left" statistic right?

  • Drave Robber||

    My educated guess is rather somewhere between 6 and 8% since 2004.

  • Fist of Etiquette||

    Seems like it's time to look into moving some manufacturing to Latvia.

  • Raston Bot||

    “It is really shocking,” added Mr. Calitis, who runs a soup kitchen at his church in Riga’s old town. Latvians, he said, “should be shouting in the streets,”

    Shouting for what, higher taxes to pay for a bloated public sector?

  • Ted S.||

    Is it me, or does Veronique have a receding hairline?


    Its you. Your vision is receding.

  • waaminn||

    Sometimes dude you jsut gotta roll with it.


Get Reason's print or digital edition before it’s posted online

  • Progressive Puritans: From e-cigs to sex classifieds, the once transgressive left wants to criminalize fun.
  • Port Authoritarians: Chris Christie’s Bridgegate scandal
  • The Menace of Secret Government: Obama’s proposed intelligence reforms don’t safeguard civil liberties