What comes next for Latvia after OECD accession?

17 May, 2016 D. Aures Delfi

Was it ever really in doubt?

On 11 May Latvia was formally invited to join the OECD. This was widely, and quite rightly, celebrated as a sign of Latvia’s political maturity and developed market economy. Seemingly against the odds – late last year Latvia’s politicians warned that OECD accession may be delayed because of a lag in carrying out significant reforms on the oversight of state-owned companies and the financial sector – Latvia has once more taken a big step towards weaving itself into the fabric of ‘the west’.

Of course, we have been here before. In 1998 Latvia was initially categorized as a ‘second wave’ EU accession state (Estonia, as per usual, was a ‘first wave’) and was invited to begin negotiations on joining the EU only several years after Estonia. However, Latvia’s bureaucracy excelled at following the roadmap of reforms spelled out in the annual reports prepared by the European Commission and joined the EU in 2004 together with Estonia.

Latvia has similarly swiftly carried out the reforms needed to join NATO (also in 2004), to receive bail-out funds after the great economic crash of 2008-2010 and to join the euro-zone (in 2014).

Why is Latvia so good at joining international clubs?

This is why the invitation to join the OECD was not surprising. When it comes to joining international clubs, Latvia always does what is needed. This is because Latvia has significant supporters – the US and the UK as well as the Nordic states – that push Latvia’s interests at the international table. Moreover, Latvia’s civil servants are far more efficient and effective – particularly in carrying out specific administrative orders – than the general public believes.

More importantly, there are no conflicting deep political ideologies or party programs that clash with the reforms proposed by Latvia’s international partners. Conditionality – key reforms that need to be undertaken in order to receive a benefit such as a loan, aid or membership of an organization – rather than liberalism, conservativism or social democracy has been the prevailing political ideology in Latvia for more than two decades.

This is partly because of the understandable security priority of weaving Latvia into the chain of western political institutions. But it is also because of a lack of ‘thick’ ideology or programmatic policies in the governing, and opposition, political parties.

As the recent heated debate over the Istanbul Convention has proved, the National Alliance is focused on values rather than policies. The seemingly misnamed Unity contains such a diverse bouillabaisse of members – conservatives, liberals, nationalists and the only real social democrat in the Saeima (Atis Lejiņš) – that it is hard to imagine it coming up with a comprehensive and cohesive economic plan. The Green-Farmers have traditionally focused their policy-making resources on agriculture, rural development and transport rather than broader economic or social issues.

Some observers seem to believe that the OECD will fill this policy-making gap. Certainly, the OECD functions as a think-tank for economically developed western nations. It collects and analyzes data and carries out applied research on a whole host of crucial policy issues – from measuring academic attainment in schools (the famous PISA studies) to studying tax, welfare and migration issues. There is no doubt that Latvia will benefit from being included in these surveys and will have access to valuable data and policy debates. But the OECD is not, nor should it be, an institution that shapes national economic and social policies. This is up to the member states, each of which have their own competitive advantages (and disadvantages), viable industries and political trajectories.

As the economy shrinks, what next for Latvia?

The latest data on economic growth in the European Union (published last Friday – a good day to bury bad news) shows that Latvia now has the sixth lowest rate of economic growth among the 28 members. Indeed, the Latvian economy contracted by 0.4% in the first quarter of 2016, compared to the last three months of 2015.

With no more international organizations left to join, Latvia will have to seek domestic solutions to economic and social challenges. However, the last time Latvia was left alone and unsupervised to develop policy we experienced the dramatic and destructive boom and bust of 2004-2008.

To avoid a similar fate there needs to be far more qualitative, researched and evidence-based discussion of domestic policy. Political parties have to invest far more time, resources and effort in crafting their policies while the Latvian Parliament should finally create a research office to aid parliamentarians in their decision-making (the Latvian parliament remains the only legislature in Europe without a research arm).

Latvia’s successful integration into every major western international organization has shown that politicians and bureaucrats are capable of fulfilling complicated and detailed externally-driven reforms. Now it’s time for Latvia to formulate a vision of domestically-driven reform.