Abstract
The economic crisis has increasingly become a political struggle to define the principles that will govern the future of European economies. With the Greek government having finally bowed to the pressures from creditor governments, it seems that not only austerity, but also ‘internal devaluation’, has come one step closer to becoming the self-evident solution to economic imbalances. And why not? Did not the Baltic states show us that such an internal devaluation, in which wages, social security, pensions and other social standards are lowered in order to obtain balanced budgets and increase competitiveness, works? Did their populations not consent and even re-elect the politicians that adopted these tough measures? And are they not once again on a path of growth?
The position of the Baltic states as exemplary models in the political debates surrounding the crisis is the starting point of the book under review. While the Baltics – and especially Latvia – have been hailed as examples of how quick and harsh reform can lead to an equally quick economic recovery, the chapters of this edited volume paint a somewhat different and more detailed picture.
First, many of the chapters stress the very specific conditions that have allowed the Baltic countries to perform a miracle recovery. For all three countries these conditions include a highly depoliticized population and weak trade unions, which have allowed political elites to impose austerity measures without major resistance from the population. Furthermore, strong ethnic divides have been exploited by these same elites to retain power. Finally, mass emigration has been a common feature of all three countries. As Juska and Woolfson argue in their chapter, the ‘exit’ of more than 7 per cent of the Lithuanian population from 2009 to 2012 ‘possesses a quality of social pessimism quite unlike previous migration’ (p. 107). This point is echoed by Sippola, who argues that this ‘exit’ strategy should be seen as a consequence of the lack of channels of ‘voice’. There are also country-specific conditions, such as the inflow of speculative capital in Latvia, the huge EU funding received by Lithuania and a very strong integration with the Finnish economy in Estonia. The general message of this publication, however, is that the internal devaluation strategy of the Baltics can hardly be emulated with the same results by other countries.
Secondly, the book takes a closer look at the so-called miracles. On the one hand, the chapters examine the kind of recovery that the Baltics have experienced. For instance, Sommers outlines in his chapter the sources of economic recovery in Latvia. They are (in order of importance): the inflow of highly speculative capital due to low taxes on property; an ecologically unsustainable cutting and export of forests; real increases in manufacturing but from a very low level and based on the very low wage levels of the country; and increases in agricultural exports that do, however, fluctuate. When deconstructed in this manner, the recovery looks less like a miracle and several of the chapters question the viability of the economic growth path of the Baltics in this manner. As Hudson argues in his chapter, the economic crisis of Latvia was not simply caused by external factors, but was also a consequence of a long sequence of questionable socio-economic decisions. A long line to which the strategy of internal devaluation can now be added, because it has led the Baltics on a path where it is their ‘specializing in being poor’ (p. 72) that provides the economic growth, as Reinert and Kattel argue.
On the other hand, many of the chapters highlight the social costs incurred by the populations of the Baltic states: the increasing poverty and relative poverty, the simultaneously decreasing wages and increasing prices, the increasing unemployment (that would have been much higher if large parts of the population had not emigrated), the increasing suicide rates etc. In addition, they argue that high emigration of (especially) the young population and low birth rates are making these countries demographically unsustainable while also robbing them of their most productive workers. Inequality is also increasing as elites in financial sector and high public administration are getting richer while workers in the productive economy are becoming poorer and more exposed to precarity.
Thirdly, the single country studies debunk the myth of no protest. On the one hand, it is acknowledged that the Baltic populations are depoliticized, that ethnic tensions and nation building take up much of the political agenda, that trade unions are weak and that individualized strategies through emigration represent a major tendency. For instance, Sommers in his chapter on Latvia argues that while the 2010 election was seen by outsiders as a referendum on austerity, it was in fact much more about divides between ethnic Latvians and ethnic Russians. On the other hand, however, it is also shown that there have indeed been protests, with some ‘of the largest popular gatherings since independence’ (p. 90). Nevertheless, the political elites in all three countries have stuck to their agenda of prioritizing euro accession over social sustainability.
On a critical note, the organization of the book is somewhat unclear, as studies of single countries are mingled with chapters that take a more general view on the Baltics (or even the EU more generally). Also, there are some overlaps between the chapters, and there are some tensions between the very detailed and multi-causal accounts of single countries and the more general story about the problems of contemporary capitalism, European integration and the problems of the euro. Still, the detailed studies of the Baltic states contained in this book are very valuable for the continuing debates on the supposed virtues of internal devaluation and the future principles of European economic governance. They bring real social consequences and dilemmas to a debate too often marked by euphemisms (‘hair cut’, ‘internal devaluation’, ‘austerity’) and they encourage us to take a deeper look at the facts before we decide what constitutes a success and failure.