“A little economic patriotism has never harmed anyone.”
Franck Riester on the French TV channel BFM Business show “Le Grand Journal de l’Eco”, 25 January

At first glance, the reader might think that “economic patriotism” means a person’s moral attachment to their country and a desire to promote its prosperity – for example, by paying taxes honestly. However, if we delve a little deeper into what is being said, it becomes clear that it is more of an economic doctrine, which it would be much more honest to call economic nationalism. The thing is, the word “nationalism” has a negative connotation in modern Western Europe, so patriotism is simply a euphemism used here to express the same thought more politely.

If anyone talks about the return of economic nationalism today, they are most likely mistaken. Not because the idea of putting one's own country's prosperity first is not relevant. Quite the contrary – it has never disappeared, even in the recent era of apparent total globalisation, when a unified world economy seemed almost within reach. After all, the economy is determined by political decisions, so as long as the foundation and point of reference for politics remains the nation-state, the economy will also primarily be national. Even the European Union, while forming a regional political bloc with common interests, is at the same time a union of states whose task is to promote the realisation of national interests. No matter how cynical Sir Humphrey from the popular series “Yes Minister” may seem to us, he is unfortunately right: Europe is a game played in the name of national interests. These national interests are not always defined purely economically. However, it is clear that the economy does not play a minor role here and that every country’s long-term balance must ultimately be greater than zero. Latvia, which receives three euros back for every euro invested, is prepared to tolerate large numbers of Latvians emigrating to other EU countries – in the hope of eventually welcoming them back. But, for example, the Netherlands, which pays much more into the EU budget than it receives back, can also rejoice in free access to Central European markets, investment opportunities, and human resources. At their core, EU decisions are determined by a balance of member state interests. On this basis, one can also build a common European economic interest – for example, joint investments in research, innovation, digitalisation, cybersecurity, green energy, and so on. However, EU member state governments, let’s be honest, quite often try to put our federalist hub in its proper place: saying, we each have our own shirt that sits closer to our own skin.

Talk of economic patriotism, however, has a broader, global context. The deadline for the popular economic reform recipe known as the “Washington Consensus” has passed. Its components were painfully familiar to Latvia: strict monetarism, fiscal discipline, low taxes, privatisation, deregulation, and the liberalisation of the foreign investment regime. This medicine was first prescribed to Latin America and then to Central and Eastern Europe – not without positive results, but often not quite the ones expected.

The very idea that the state should retreat from active participation in the national economy and allow private business to expand has seemed quite logical to many in our region. Let us recall the old joke about the Jewish tailor who is reproached for being late: “Even God created the world in six days; couldn't you have sewn the trousers faster?” The tailor answers: “But you look at this world, and then you look at these trousers.” To paraphrase: “But you look at this state, and then you look at this business.” If the state administration is as ineffective and unprofessional as it has been in many places in our region, then perhaps it really should not be given full rein to interfere in the economy. Let the business, one way or another, try to scramble along on its own.

But those days are gone. It has been proven that the Washington Consensus is unfortunately unable to ensure the kind of long-term economic growth that would allow “new” industrial countries to catch up with the “old” ones. Here, Latvia is a great, though not unique, example. Of course, our economy as a whole has grown quite well, but talking about the long-awaited “convergence” with Western Europe is, unfortunately, very, very difficult. And this pace is not satisfactory in the long term: if we do not grow faster, we will continue to lose people, and if we continue to lose people, we will not be able to grow faster, and so on and so forth, in Hegel’s bad infinity.

Therefore, the state is back, and in very many areas. There are attempts to rein in freely drifting global companies and force them to pay taxes somewhere, offshore practices are being combated, and the G7 is trying to agree on a 15% corporate income tax rate – not at the legal address, but where the income is generated. The concept of industrial policy is beginning to feature in EU documents, along with calls to support companies – European champions. Even in Latvia, inspiring speeches are being made about “smart reindustrialisation” – albeit without a clear idea of exactly what kind of manufacturing will be supported here.

Those supporters of “economic patriotism” who breathe unevenly in the direction of Russia and Belarus should not be too happy, however. The value chains that determine the development of every country today will remain global. The success of the Latvian economy also lies in closer integration within the European economic space, not in isolation from it. Nevertheless, it must be taken into account that perceptions of permissible and impermissible state activity in the economy are indeed changing in the world. And at the same time, we must hope that we will have enough sense to use this for the interests of our own economy.
Article first published in the July 2021 issue of Rīgas Laiks magazine