Tuesday, 01 April 2014 00:00

Book Review: The Contradictions of Austerity - the social-economic costs of the neo-liberal Baltic model

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The Contradictions of Austerity brings together a collection of studies on the impact of the 2008 crisis on the  Baltic republics of Estonia, Latvia and Lithuania – all of which introduced austerity policies early and before the rest of the EU. 

The champions of neo-liberalism have used the example of the Baltic states to claim that austerity works.  The studies collected here demonstrate it does not.  Still more important, they analyse the emerging social consequences.  These findings are of major importance and stand as a warning to workers across the rest of the EU.

Much of the story is familiar.  After joining the EU the Baltic republics saw property-based booms fuelled by easy money and low interest rates.  The 2008 financial crisis killed this and precipitated massive contractions in the economy.  Output in Latvia fell by 18 per cent, in Lithuania by 15 and Estonia by 14 per cent. The response of the internal elites was to impose what is described as ‘internal devaluation’.  This was not a currency devaluation. Under the cover of preparing for euro entry, the moneyed elites refused to countenance any reduction in the international value of their wealth.  Instead what was imposed was a massive cut in salaries, pensions and the social wage.

Champions of neo-liberalism in the EU heralded the results as justifying the austerity then being imposed elsewhere. The Baltic states saw 2 per cent growth in 2010 and 5 per cent by 2011 as investors sought to take advantage of cheaper labour.  This growth rate was considerably more than what was then being achieved across most of the rest of the EU – but in reality only a very small gain compared to the loss of output in 2008-09. 

The costs for the populations of the Baltic states were, however, massive.  They went far beyond a sharp drop in living standards and involved a deep remoulding of social relations and the labour market.  The four main changes were: the removal of most contractual safeguards for a majority of the workforce, a massive growth in precarious, part-time employment, the ballooning of a black economy in which workers had no rights at all (30 per cent of total employment in Lithuania by 2011) and unsustainably high levels of emigration for skilled and educationally highly qualified workers. Up to 5 per cent of the workforce has been leaving each year. Wages in Sweden are now four times higher than those in Estonia and five times those in Lithuania. 

The authors document an initial resistance by the trade unions, particularly in Latvia and Lithuania.  But it was not sustained.  A refusal by the governments to respond, the use of increasingly authoritarian methods against any protest, the increasing scale of unemployment and emigration left trade unions weakened and politically marginalised.  The result was the growth of what the authors call an ‘austeriat’, a majority workforce that was only marginally employed and the creation of disabling divisions within the working class.  As local workers left, employers began the process of bringing in other workers from southern Europe or Thailand willing to work at even lower wages. This in turn has strengthened a historic legacy of xenophobia. 

The authors argue that these consequences, now seen dramatically in the Baltic republics, are likely, to some extent or other, to be duplicated across large parts of the EU.  They also note that this flexible, mobile and individualised workforce, increasingly uprooted from any supporting social or national institutions, is what the authors of the Single European Act required for their economic model to work. Market forces will infallibly dominate – ending any pretence of a Social Europe.  While this will not stop the European Commission issuing document such as ‘Strengthening the Social Dimension 2013’, the longer-term social and political consequences are likely to be fatal to the EU itself: ‘the ultimate failure of the European Union’s project is more likely to be a question of when rather than if.’  

The hardback edition is expensive and for library purchase only (hopefully a cheaper paperback edition will be produced). But the book is important nonetheless. The authors are experts in their fields, academics from the Baltic states themselves, from Britain and the US.  They are fully sensitive to the differences between the Baltic states. But they also paint an overall picture which the British labour movement cannot afford to ignore

Additional Info

  • Price (exc: postage): £84.99
  • Number of pages: 184
  • Publisher: Routledge
  • Publish Date: Tuesday, 01 July 2014
  • Edited by: Jeffrey Sommers and Charles Woolfson
Read 4981 times Last modified on Wednesday, 22 July 2015 00:49
John Foster

John Foster is secretary of the Marx Memorial Library. He has taught at the universities of Strathclyde and the West of Scotland.

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