An interview with Kristaps Klauss, advisor to the Minister of Economics and executive director of the Forest Industry Federation of Latvia

Talking about the development of the economy and production is unpopular, said the current Minister of Economics, Jānis Vitenbergs, in a recent interview while he was still a member of the Saeima.

Here we must talk about different groups of people. There are people who know how to make money. There are people who believe that those who earn money do not always spend their time usefully, or that they do not spend the money they earn quite correctly. There are people who believe that one can always earn more, but who do not do so themselves. And then there are people who think that money comes from ATMs. Lady Thatcher is said to have stated that the main problem with socialists is that they eventually run out of other people's money to redistribute. Unfortunately, the group of people who know how to earn is getting smaller. I know that in the higher echelons of the state and among policymakers, there is at least a small understanding of economic causalities! But – if we are talking about popularity or the desire to be loved and nice: in that case, the economy is a topic better left untouched, better not talked about! That is indeed true!

The term 'national economy' is usually understood as the so-called 'big' money contribution. If we do not talk about large or small companies, but compare, for example, industry and crafts, quite interesting things can be observed. In the eyes of the public, craft has always been proper and dear, and over time it will become even dearer! In my line of work, I have met more than one person who seriously believes that Latvia's economy can be based on the style of the 'Kalnciema kvartāls' market. That is to say, it is not about the excellent event and the very good market idea, but about the thought: let’s knit a pair of socks, weave a linen tablecloth, pickle some garlic scapes and sell them to foreigners for, say, 300 euros a piece! By selling five pairs of socks, five tablecloths or five jars, we could build and stabilise the national economy! ...

That is not so and will not be! That is a dream one can dream, nothing more! Like this – dreamily – an economy is not created in any European country! But those who work hard and thoroughly are, unfortunately, becoming increasingly unpopular. That is a fact!

For example: the cleaning up of a degraded area and the construction of a factory where, God forbid, a chimney will smoke. To a local resident, this area will remain a closed and degraded space; if a cycle path, park or community centre were to be built instead of a factory, it is clear that an alternative to production would be more appealing, but these are expenses for which the money must be earned elsewhere.

The often-cited entrepreneurial gene and its interruption for 50 years. What do you think about that? We may not learn everything about the Soviet times, but even then, of course, under appropriate and often dangerous conditions, there were people who 'knew how to act and scheme' (in the parlance of the time)!

A very philosophical question! In my opinion, the entrepreneurial spirit or gene has not been lost; every person is born differently, and even children from the same family develop into distinct personalities! I think there has never been a very large number of entrepreneurs in any society! Here too, those who have the interest and the skills do it! I suspect we are missing something else. If we look at the 30 years of independence that have passed, every decade has been completely different! In the 90s, the so-called 'wolf capitalism', a great opportunity to earn big money and an equally large opportunity to end up with 'an iron tan, sulphuric acid on your face or a black tombstone'. Each decade already had other opportunities and challenges. Latvian society is changing, I hope for the better; it is becoming more experienced and is learning. The experience, knowledge and skills that were perfectly useful in the 90s are effectively unusable in 2020! For example, the time before the internet and now! In the 90s, there were greater opportunities due to the unsaturated market; low costs allowed for larger commercial mistakes, but at the same time, the criminal situation and informal forms of punishment were brutal. Currently, the market is saturated in almost all areas. There was a time when employees could be paid in products because there was no money; today that is completely impossible! If any entrepreneur tried not to pay wages for a longer period, they would quickly run into problems and would have no employees! Each time has its own opportunities! I do not think that we as a nation have been depleted and that the entrepreneurial gene has been lost! That is not so! We have lost the 'time of great opportunities', when one could quickly get hold of big money, but the time has not yet come when the state system is as precise and stable as a Swiss watch.

What should be emphasised: the issue of demographics and ageing is also current elsewhere, not just here! Moreover, entrepreneurs are also ageing! Those women and men who created businesses in the 90s and are still working seriously have reached or are approaching retirement age. Two types of strategies are visible: some have business successors and continuers, where one can see (in a good sense) the 'hunger' of the new generation to show and prove themselves; there are companies whose owners do not see heirs, here one can observe a certain stagnation or inertia – the company is working, everything seems to be happening, income is stable, but the feeling is 'my lifetime is enough, I won't risk any more!' Latvia still does not have a well-functioning business sales model, where a business is easy to sell! 'Development' sounds good, but at the same time, it is a certain risk of losing what has already been started!

I must say, in the part of the economy owned by Latvian capital, the slowing down, the 'wise sluggishness' I have described, can be noticed more and more! This causes concern! Let us hope that we will very soon reach a situation where professional management and professional managers will play an increasingly important role! Currently, when we talk about small and medium-sized business, often the owner is also the manager, the CFO and the sales organiser. This model is good, but it can only maintain and function in a business of a certain size!

When you were invited to become an advisor to the minister, you must have thought about the very, very important things to be done! How is it going?

There were many ideas! Very many! A large part did not succeed, even though the minister listened, understood and supported, and pushed it in the Cabinet of Ministers, but – in a democracy, collective decisions with a majority vote 'work'! This can also be judged philosophically. For example, one thing that did not gain support, unfortunately: to sort out the issue of sickness certificates. Unlike entrepreneurs in Lithuania and Estonia, Latvian entrepreneurs pay for a much higher number of sick days. This creates a quite significant impact on the labour remuneration fund! If entrepreneurs had to choose: subsidised jobs or a smaller number of paid sick days, they would undoubtedly choose the latter! This would be simple to implement, and it would not affect either competition or fairness. Unfortunately, in politics, before making a decision, voter votes are often 'recounted' in one's mind, and the impact of the decisions is calculated. There is no difference for the voter; the voter would not notice the changes – whether sickness is paid for by the state or the entrepreneur. To the politicians, the decision did not seem acceptable!

The positive thing: the so-called 'long money', which, although it will not be widely available to all entrepreneurs, will make it possible to borrow funds for investments for a term longer than 10-15 years. This will allow for more courage in certain investment projects!

It has been heard from the Prime Minister this year that 'there is more money than ever', and – 'there will be money'! The impression arises that not everyone understands that money must be earned and money must be repaid. At the same time, ideas to restrict, ban and not allow, not only in the forest sector, are heard quite often. Where is the balance?

These questions are separate, even if they all affect the development of the national economy together! 'There is money, there will be money!' is a short-term story! It is a certain relief for the higher echelons of the civil service, for entrepreneurs and for politicians, who (many of them) have experienced the 2008-2009 crisis, and more than one remembers the events of 1997-1998! The previous crises were on the verge of despair or insolvency. For example, in 2008-2009, there was only enough money in the State Treasury for a couple of months of pension payments before the money would have run out! This year there was a credit limit; money was in the State Treasury accounts; there was an opportunity to borrow on very favourable terms, given the state's quite positive financial indicators. At least in the case of the latest loan, we will have to repay less money than we borrowed! So to speak – 'there is money' – was a very human sigh of relief!

The second thing: politicians, remembering the previous crises, could sigh that difficult and unpopular decisions would not be necessary! There would be no need to reduce expenditure, no need to think about the 200,000 Latvian residents working in the state and municipal sectors, whose salaries it would affect, no need to talk about tax increases.

The money was in the account, and neither the first nor the second factor occurred! Without knowing how everything would develop, the money was there for a rainy day!

Yes, the Prime Minister's statement was also heard: there is more money than ever! Since Latvia was not overly affected by Covid-19, apart from the restrictions, a natural desire arose: to spend! We have realised this desire. The public was convinced that politicians listen and hear, and are looking for the best way to spend. All of this created a feeling that money was needed for this, for that and for something else... This quite quickly led to disappointment because there was NOT that much money (money for everything)! If you talk quickly and vaguely about 4 billion: approximately 1/4 was left in reserve, planning that tax revenue for the year would not be as planned, but expenses would not decrease (to cover planned expenses); it is assumed that next year will be similar – something must be put aside for the future; several decisions under the influence of Covid-19 that would have been impossible at another time (support for AirBaltic)... Counting like this, 4 billion 'runs out' unnoticed...

When we were working on the business development plan, not much was left over! Then there was disappointment, because one could have done this and that...

One must not forget that we have a five-party coalition! Each minister looks at how to report on their sector, and those who are closely related to the state sector assess: how much money the minister has obtained (brought) for the industry! That means the ability for political fighting!

For a moment, there was a serious risk that the economic stimulus plan would keep the word 'economy' in its title alone! In the end, the Prime Minister, the Ministers of Finance, Agriculture and Economics managed to save it all to some extent!

What will be relevant in the forest sector in the near future? For example, the timber market.

It is better to be silent about market matters because there is a possibility that by the time our conversation is published, a U-turn will have been made and everything said will already be in the past! There is a great deal of uncertainty in the markets; in 2008-2009, the situation was more understandable and predictable. Currently, the 'market path' is very winding and the visibility is about 100 m, no further! Even large international organisations that have many different resources, for example, the OECD, in the forecasts prepared in June for the coming year, include two scenarios: one Covid-19 flare-up or two. One must be vigilant! If we take into account that in European and global terms, our entrepreneurs are, for the most part, medium and small (Yes, in Latvia we consider them large!), they have a great advantage – the ability to react faster and adapt faster! This would allow us to emerge from problematic situations 'drier' compared to competitors. For example, the Finns are currently having a very hard time in the forest sector!

If we talk about the near future, the industry must understand how we will adapt to all the new policies and strategies that are rolling over our heads like an avalanche! The 'Green Deal', the biodiversity strategy, thoughts about a common forest policy in Brussels. The question is not whether they will arrive, but how quickly we will be able to adapt to the new world rules. They 'will be here'! It will not be simple!

The new rules will come and they will be. Will it be difficult or impossible to influence or change them?

I look at this as a river. It is not in our power to change the direction of the current; we will have to adapt. We can change some bend, speed up or slow down the speed of the flow in some places, but it will not be in our power to stop the river without a disaster. Therefore, it is wiser to look at how to reduce losses and use the new opportunities.

Critical attitude or lack thereof towards the ideas and documents of European institutions. Is everything being analysed accurately and understandably in Latvia?

Analysis is happening; I have noticed it during my years of work at the LKF, and I am convinced of it! Since we are humans, many of us love Joan of Arc very much, provided that we are not Joan ourselves! There is a readiness to send someone into battle and later build them a monument if one does not have to participate oneself! Battles are not won by generals or one hero! Battles are won by armies, by soldiers!

European documents. There are many of them! Of course, the simplest thing is to agree with what is written! If there are strong industry organisations that follow everything, in moments when things are not good, they react. I know it and I see it! Many initial ideas have been changed! The great battles are not seen by most of the public – regardless of which industry is being talked about. The public does not know the drafts or the origins of documents. For example, the European Timber Regulation: if one remembers the initial plan – it was very utopian and impossible to implement. The adopted version is annoying, utopian in places, but overall implementable for Latvian producers. There is a series of other documents in the creation and changes of which a lot of work has been invested, but in the end, one can live with them. But those who have not been in the process only see the final result and criticise its shortcomings.

Speaking of heroes, we can recall at least the last Saeima elections in 2018. There were a number of parties, some of which performed very successfully, that were able to show perfectly what was wrong in the country! The campaign was based on that! The campaigns were precise; much could be agreed with. The parties that got into the Saeima and could get to work – to sort things out – suddenly realised: 'It is not so simple to do!' If in Latvia one actively and energetically delves into all documents, one can influence their content! They cannot be turned completely around or ignored, but they can be changed, improved and influenced!

Also: Riga gives us fewer headaches compared to Brussels. Here, it must be taken into account that the European Union is a union of countries where everyone evaluates everything according to what they have personally experienced and lived through. For example, for a Frenchman, peat bogs are something very special where every square metre must be protected. For Latvians, an oak tree is a sacred tree, and oak groves must be protected. If a Latvian tries to interfere in the European oak economy according to their understanding, the Frenchman will clutch his head! As soon as the Frenchman starts dealing with bogs, we will get worried.

The latest fashion trend: if someone speaks poorly about our forests and foresters, it is good and correct! As soon as you start talking in more detail, it is clear that the person has no knowledge about forests; it is at the level of slogans, posters and literary works. The industry is being attacked, and purposefully so.

We are people of the forest industry, and if something untrue is said about us or our work, we take it personally and acutely. But if I talk to my relatives and friends who are not involved with forests, they have not noticed this 'attack'. We feel it and notice it! I cannot say that we have come under special focus. Discussions are often sharp, there are hot-headed industry representatives, there are hot-headed opponents, which is understandable, because forests make up about 53% of our territory! If you see something every day, after a while, you consider that you know it! Just like many drivers, while being in traffic jams, unintentionally become traffic experts because they know what should be organised differently!

But – over the last few years, a change in public thinking is increasingly felt: as people gain a certain level of well-being, they start looking at things and events less pragmatically. As I already mentioned: in the eyes of people, for example, craft is becoming more popular compared to industry! At wood product exhibitions, visitors spend more time on wooden bow ties compared to delving into the construction of wooden houses! In my opinion, the cross-section of a wooden house is a much more interesting object for viewing compared to a wooden bow tie! Exhibition visitors think differently!

But, of course, there are things I cannot understand. An emotionally easily understandable story: the bird nesting period and logging. That would be clear, but... I was recently in Sēlija; nearby, a stork was walking around with a broken wing. The locals were worried that it might be 'their stork', as, being left alone, how would it feed the stork chicks. Yes, that was emotional and easy to understand! But – when you ask a convinced ornithologist: what to do with this stork, they will answer – natural selection! When we talk about the bird nesting period, 'beautiful numbers' are mentioned, which sound powerful. If we look at the fact that in the spring, logging affects about 0.7% of the territory, that does not sound like much and is not much. Especially if you compare it with that same natural selection.