Observing the work of various state institutions and analysing their decisions, one often gets the feeling: if you want something done, do it yourself. This is reinforced by another feeling, which gradually turns into a conviction: “It’s great if you’re not interfered with!” Do those working in public administration have the knowledge of how not to interfere, and are the popular and correct words that are on the tongue of almost everyone close to politics actually understood by the speaker themselves? Do we speak to be understood, or do we speak to “look good”?
Public administration employees are often criticised for a lack of experience and understanding, and for not being business-oriented, which leads to many flawed and misguided decisions being made at the expense of taxpayers. How could this situation be changed?
When I worked at the Ministry of Economics, I established a certain procedure: if an official proposed a draft regulatory document, I would ask: “Would you wish this upon your own children?” The moment I received the answer: “Well... I don’t know...” or if the person hesitated instead of answering, we set about revising that document. We would break the bill (or other draft legal act) down article by article or point by point and discuss it in detail, both within the ministry and with cooperation partners. That, in my opinion, was at least a partial solution to the problem when the views or desires of the entrepreneur and the public administration did not align.
Looking at it from the perspective of public administration, it is important to clearly understand: will what the entrepreneur is asking for or wanting benefit society as a whole? On the other hand, it is just as important to ask: will a European Union regulation, or an official’s personal conviction, work experience, thoughts, or stance, benefit the entrepreneur and society? The search for balance has always been the most important and riskiest part.
For example: entrepreneurs faced a problem; looking for a solution, a working group (LIIA, Ministry of Justice, VARAM) worked on it, while simultaneously thinking about drafting planning documents, which is equally important for both the entrepreneur and the municipality. The “finish line” was already in sight, those involved felt happy and that they had done their job... A proposal from Members of Parliament arrived in the Saeima. At that time, I personally spoke at a Saeima session, saying that I understood the entrepreneur’s situation well, that work had been ongoing for three months so as not to unfairly infringe upon anyone’s interests, but that I could not support the entrepreneurs’ proposal because it “catered” to only one set of interests: that I (we) should have everything, that our problems should be solved. But... what about the interests of society as a whole?
If one can evaluate it this way: a decision includes both the conscience of the entrepreneur and the conscience of society, and ultimately it reaches the politician who decides. The aforementioned situation ended with the rejection of the MPs’ (entrepreneurs’) proposal, but... just a week later, thoroughly discussed and correct proposals for solving the issue were submitted. Everyone was satisfied.
The magazine “Ir” untiringly berates both the Ministry of Economics and the Minister, because, in the opinion of the writers, ministers who considered it necessary to act and do something during the height of the Covid-19 outbreak risked public health, the future of the state, etc. In Latvia, a part of society is clearly visible that believes that taking action is not the right approach... It is good to be afraid, to be cautious, to do nothing, to obey, etc.
To do or not to do... Not to do... One can, of course, exist...
An entrepreneur’s main task is to preserve jobs and maintain or improve the company’s performance, which is impossible if nothing is done. There have been, perhaps, not a few mistakes in the Covid-19 situation. It might surprise some, but neither the public administration nor the much-lauded experts had any competence or understanding—let alone experience—of how to handle a crisis situation, how to act. They just didn't!
On 13 March 2020, a state of emergency was declared for the first time. The government made decisions and... from top to bottom in public administration, there was a greater or lesser degree of anxiety (or more accurately, in places, the situation was nearing panic): “How do we deal with this? How? How do we solve it?” Throughout all of this, Minister Ralfs Nemiro was also “asked” to leave his post.
What did I think and how did I act? I think I said this to a TV3 journalist: “I will work from start to finish.” I prepared a list (for myself) of what needed to be done and how. As it turned out, I had one of the most stable competencies at the Ministry of Economics regarding action in the early stages of social distancing, as I had worked in the pharmaceutical industry. The point was: how to look at it, what to do, what to evaluate. Before an important Saeima committee meeting, I reviewed the experience of Asian countries in 2019, the experience of 1918 (the Spanish flu pandemic), and “stopped” at the experience of San Francisco in 1918. Ultimately, we handled the situation quite successfully, and distancing gradually became the norm. The process, which was intended as a quick solution (for a shorter period), turned over time into a heavy, prolonged battle between economic development and the health sector. This happened for various reasons—political and non-political, logical and illogical. The battle often became incomprehensible, often “miraculous”. Yes, I also personally did not go to certain shops for a while, because I could bear it and the norm approved by the Cabinet of Ministers regarding restrictions did not seem right to me, but I considered that at that moment it was right for me to live as every inhabitant of Latvia had to live!
The summer of 2020 was a period of respite; the economy recovered quite rapidly, support and other measures provided a lot, and export volumes grew. Latvia preserved what other countries lost. Those who continued to work created new opportunities. Entrepreneurs themselves participated in the drafting of various rules, often setting stricter rules in their workplaces, because it was in the entrepreneurs’ interest: “To work!” I saw situations where an entrepreneur spoke to an employee on Zoom, even though the person they were talking to was just a few steps away. But—this employee and their presence in the loop was so important to the entrepreneur that they dealt with it this way. Entrepreneurs approached the situation creatively enough; the solutions were good and correct.
The transition from creativity to heavy-handedness is typical of Latvia (an explanation that it might be the same in many places is no excuse). Kristaps Klauss, Executive Director of the Latvian Forest Industry Federation, once said in an interview: “Brussels worries us little; we are more worried about Riga (local decisions).”
One can agree with Kristaps: there is diligence, and then there is over-zealousness...
...which, 50 years ago, was aptly concluded by Ēvalds Valters in the film “Vella kalpi”...
Indeed. Over-zealousness very often lets you down. A directive is sent from Brussels. I really like that word—directive—because it is a “direction indicator”. Brussels gives the direction, but how we reach it is our business. There are things that are mandatory and things that are recommended. What happens in Latvia? Recommendations and rules are merged. I have asked more than once: “Why are we writing this norm or rule into this law, if it is already included in another law?”
How to transpose Brussels directives—that is the responsibility of the Latvian state. We have to report on our implementation. That’s it. But...
Where does over-zealousness come from? What is the motivation to over-reach, and to the detriment of Latvia’s interests?
To make it easier for the person who is over-reaching. For example, the “Law on the Prevention of Money Laundering...” (1, hereinafter the Law)... We read: “If the subject of the law is unable to perform the customer due diligence measures specified in this law, then the subject of the law shall not commence business relations, including not opening an account...” What are reasonable concerns? ... If a bank cannot get an answer, it is easier to tell the client: “I don’t want to work with you. I don’t even have to look into it or search, but... I don’t want to, because I’m concerned...” By the way, there was a time when a client was refused without explanation; now the Law has been changed, because an entrepreneur cannot always verify every business partner. For example, transport companies that carry parcels, cargo, or shipments all over Europe.
It is about something else: who will check whether the money in the economic cycle was obtained through criminal means. Only one of the participants in the economic chain is guilty; logically, the perpetrator should be held accountable! Because just as any inhabitant of the world can be connected by 4.74 handshakes, this theory also applies in business and capital flows.
Concerns can be about many things... Just as many things are “possible, permissible”, etc.
Within the scope of the Law, that was the case. Entrepreneurs sought ways to prove that they were acting in good faith and wanted to work. An entrepreneur’s mission is to ensure the growth of the state—Latvia—not to engage in investigations.
In Latvia, a peculiar view is still held in high regard: “If you haven’t done anything, no one will be interested in you...” In real life, that is not the case at all!
I can agree: the issue is very, very sensitive. There are people who have collaborated with someone without knowing. Even if we take the cargo carriers I mentioned: checking 700 or 815 companies that are your business partners is not simple. By the way, the entrepreneur has essentially done nothing wrong either; they have just been working, but the “handshake theory” works regardless of them.
Through the Law, the weight of state functions has hit the private entrepreneur, the entrepreneur has paid for it, and the consumer will pay for it even more.
To a certain extent, yes! That is how many things are built... For example, when entering a shop, they check your age. In the case of banks, the story is similar: one could trust, but... Here is where the nightmare begins, namely, the system was designed as follows: if the service provider does not want to cooperate with you, then they won't. There was a time when entrepreneurs went from bank to bank, asking about the possibility of cooperation. By the way, banks set very high service fees for this, which the end consumer paid.
It would be worth reviewing the Law very carefully, “with white gloves”. During its drafting, the ability of Latvian entrepreneurs to operate in the European Economic Area was genuinely threatened. Good that some of the shortcomings have been eliminated, but a large number of “over-zealous” elements remain. This is a vivid and bad example of over-zealousness. The result? Many entrepreneurs ran away from Latvia, registering companies in other countries where, by the way, there are the same requirements, but without the over-zealousness. The goal of the Law is correct; proceeds of crime have no place in the economy, and criminals must be held accountable.
In Latvia, it seems, except for the entrepreneurs and their business partners, no one is concerned about their departure. Only those who are leaving are worried. The “pushers” have no intention of reviewing or changing anything.
There has always been concern, though... There are many discussions about the business environment. One must remember that it is very complex. A significant fact as to why entrepreneurs do not choose Latvia or want to leave us is labour taxes. A very important and serious matter. Moreover, we are talking about labour taxes on salaries of up to €1,500 per month. The loudest cries heard are: we have disproportionate taxes on high salaries. Well, well! For someone receiving a high salary, 20–30–40 euros more or less will mostly mean nothing. The group of wage earners, those on low salaries (from minimum wage up to €1,500 per month), essentially “produce consumption”, because they spend most of their salary in shops, “bringing” the state a second tax—VAT. If these people are left with a larger portion of their income, these people become more creditworthy, can build savings, and participate in the economy. This is the part of taxation where I do not agree at all with either the current situation or the recent changes. The harmonisation of social tax has been formed in a very misguided way, without providing solutions for small businesses. At the stage when the tax law was being drafted, I went to the Ministry of Finance myself, to the working group, and explained and showed that there is a group of people who are costing us all (the state) very dearly. I developed a proposal for startup entrepreneurs. An incubator in the tax system: namely, for the first few years (2–3), such an entrepreneur would pay income tax at a reduced rate or not at all, and the entrepreneur would have a limited number of employees. Restrictions on time and maximum turnover would show whether the company is viable or not, it would help the entrepreneur and would not be interesting to crooks because it provided for a cooling-off period. In addition to this, full automation of the EDS was necessary.
Of course, one must not forget about fixing the issue of the non-taxable minimum and a possible reduction in social contributions. The main thing is that workers in this salary bracket develop higher income, which would ensure benefits for the country's economy as a whole. Growth in export capacity, an increase in internal consumption, improvement in residents' creditworthiness, a decrease in the shadow economy, and in the long term, an increase in budget revenue. However, the work left unfinished currently significantly hinders the development of the economy.
When suggesting good ideas, for example, about the automation of tax administration, the answer is often heard: “That’s how we would interfere in private business.” Thinking that way is not correct. The state must collect taxes and the state must support entrepreneurs! Now... a lot of an entrepreneur’s time and effort is spent on tax calculations and reports. All this can be simplified; there is a move towards a certain amount of automation, but it is happening too slowly.
Eliminating micro-enterprises without providing a better alternative was not the right thing to do, because everyone was “thrown into the same bag”. What is to be expected? I think part of the former micro-enterprise tax payers will go into the shadow economy. Professor Arnis Sauka’s research shows how the development of the shadow economy evolved until the introduction of the micro-enterprise tax: it was rising, but upon the introduction of the tax, it fell and then slowly started to rise again.
Do the users of the term “Green Deal” in Latvia have any clarity about its meaning and specific developments?
I think there is no clarity even in Brussels at the political level.
Who has it?
The deepest understanding is certainly in the European Commission, among the commissioners. Some in the European Parliament too. Ministries and councils of member states also, but everyone looks at the situation from the perspective of their own sector. The European Commission tries to link these perspectives. In Latvia, each ministry is responsible for its own affairs, and the scariest are those where ministry interests overlap.
For example, I see the sense in fighting for the future of the peat industry in Latvia, because to think that peat and its extraction is something bad, that it destroys the ecosystem, is completely wrong. That is a fallacy! Biodiversity havens—bogs—are protected as much as they can be! There are needs for nature, there are needs for humans (who are part of nature)—in Latvia, the balance between both is very good! We extract, we use, without harming; we ensure the functioning of the food chain. In many “old” EU countries, peat as a resource has in many places been depleted, exhausted, and lost; there, bogs need to be restored because they no longer exist there. They also want such natural values there. Do we need them? Should we give away the country’s competitiveness and the country’s economic opportunities to others? That is not right! That is not state-like thinking!
The concerns are truly concerns: thinking about Latvia’s future, will we truly be paid for doing nothing?
That cannot be, and it will not be good! We know very well how we have fared in our 100+ years. I am young enough, but I remember very well the time when the sugar factory was closed in Jelgava. It was visible “down the chain”—the entire “ecosystem” of business (the work of the sugar factory) was affected. If rules are created that cannot be followed—for example, limiting forestry or peat extraction or fishing to a disproportionate extent—what will the results be? Understandable attempts to circumvent these rules are to be expected. “Where there is a will, there is a way” = “Būs griba, būs ceļš!”
One must remember: liquidation or unreasonable restrictions will also destroy indirect (related) sectors. What do foresters and farmers do? They harvest the crop and take it for primary processing. Packaging, processing—these are jobs, packaging material, nails, pallets, transporters, accountants, etc. Surrounding the farmer and forester is a large sector. If someone drops out of this value chain, it jeopardises the entire value cycle. The system that forms around entrepreneurs can be artificially transformed and damaged, which is the worst and scariest thing.
“Just let them close down, life goes on anyway”
For something else to arise and develop in place of the sugar factory in Jelgava... What happened when it all ended? A lot of machinery was written off, insolvency processes, human tragedies, because the value chain was broken. A large degraded territory appeared in Jelgava, the cleanup of which was a matter of decades. What will happen if value chains are modified? Will there be tourism and cultural development? However, we will most likely not reach the level of prosperity that we can achieve by wisely and sustainably working with our resources, because it will have been sacrificed in the name of a supposedly higher goal. Work will exist, but it will take place in other EU countries, with our competitors. Giving away our opportunity to others will never be right!
Less than two weeks ago, EU Commissioner for Environment and Oceans Virginijus Sinkevičius visited Latvia, giving an extensive interview to “Latvijas Avīze” (2).
Commenting on EU Commissioner V. Sinkevičius’s statements in “Latvijas Avīze”, I will be critical, because the Green Deal is a good and welcome idea to strive for sustainability, but: definitely by maintaining balance. At the moment, this balance does not exist! Attempts to apply rules “horizontally” will create a large number of dissatisfied residents, job losses, and significant lag for the newer EU member states. The Green Deal is essentially a change in thinking and habits, to an extent where both nature and people gain.
At the moment, it has already turned into a business battle, where business is promoted not by competitive innovation, but by promises to reduce emissions. In this way, the meaning of sustainability is lost. As an example, I will cite Latvia’s unsuccessful OIK—good intentions for greener electricity and management were turned into “individual ATMs” for a select few. How so? It was not evaluated whether these technologies would ever be able to work without state subsidies, whether such a system would provide sufficient benefit for every euro invested. The answer is bleak: “No!” When the generous subsidies run out, most of these stations close their doors; the station is “turned off” like a worn-out ATM. Unfortunately, the residents of Latvia have paid for this! Fixing this system is hopeless if there is no will to do so. “Repair tools” were given in recent years—both a draft cancellation law, which has been lying in a Saeima committee drawer, and a review of benchmark values to prevent overcompensation. These are things where I would like to quote Vaira Vīķe-Freiberga: “...a Sword of Damocles hangs over some heads”.
What has been the correct green policy? It is a policy that has the genuine support of society, even at the level of awareness. For example: a law was amended that gave residents the opportunity to participate in micro-generation much more simply. Society is using it—the increases can be measured in a geometric progression (each year). It does not put a significant burden on society, but everyone is satisfied with the opportunities to be greener without threatening their prosperity.
Evaluating V. Sinkevičius’s statements about peat, how is that meant: you won't be allowed to extract it, but you will be allowed to use it? Is that a huge contradiction? Or maybe: this resource will be extracted in other countries, but the EU will consume it? If so, it makes no sense, because by changing the order of the addends, the result does not change. Emissions “happen” elsewhere, while maintaining extraction volumes, perhaps without laws that protect biodiversity, and ultimately, neither do emissions decrease, nor is biological diversity preserved on a global scale. I categorically disagree with the commissioner’s statements that the extraction of any resource could threaten taxonomy.
For example, there is a European Union document “Critical raw materials resilience: charting a path towards greater security and sustainability”, which lists the minerals and ores that can be extracted and are necessary for the existence of various industries. Look! It even mentions coking coal, which is obtained by thermally processing coal. The document is directly linked to the taxonomy mentioned by Commissioner Sinkevičius. So—natural contradictions are already visible, because the focus of action is turning in only one direction. There is no balance, because different economic interests are “fighting”.
For example, why could an extractor of peat, gravel, or another resource not reduce their CO2 footprint through compensatory mechanisms in other sectors, for example, in energy or transport?
Unfortunately, the calculations do not allow for it, even if logic says: this is the right way. For example, use heavy vehicles powered by biogas (or some alternative fuel), which create fewer emissions, install solar panels or wind turbines that ensure production using only renewable electricity, use efficient heating solutions, seek efficiency in processes, buildings, etc., reducing energy consumption, create products that are recyclable or promote CO2 sequestration. Create products with a long life cycle. That is true green thinking! Our ancestors already understood this, as they built buildings from wood and built them in such a way that even after 50 years they are both habitable and energy-efficient.
During this time, the wood has regrown, and nature has repaired this damage to the ecosystem, but the answer always lies in proportionality and management, and furthermore, in a way where we take from nature, give back, and help where it is most efficient for both humans and nature.
1. Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing
2.https://www.la.lv/virginijs-sinkevics-jamaina-veids-ka-razojam-partiku-ka-parvietojamies-ka-rupejamies-par-upem-juram-un-okeaniem-ka-apsaimniekojam-mezus