Latvia’s Competitiveness Report 2011 presented April 20th
On April 20th, the Stockholm School of Economics in Riga (SSE Riga) delivered the Competitiveness Report 2011 to the Latvian Prime Minister at an event in the State Chancellery building. The presentation included leading experts and representatives from mass media.
The Competitiveness Report was presented by Anders Paalzow, SSE Riga Rector; Alf Vanags, BICEPS Director; and Christian Ketels, Harvard Business School researcher. Latvia’s Competitiveness Report 2011 identifies the causes of the biggest problems regarding Latvia’s competitiveness. It outlines priority actions to be taken and recommended reforms in state administration.
A shadow economy, the poor quality of the education system and the lack of transport infrastructure – these are the areas that hamper Latvia’s competitiveness. Sustainable growth of Latvia cannot be expected without radical institutional reforms, statutory accountability of politicians and MPs for their decisions and actions, as well as without the involvement of foreign experts, these are the conclusions found.
Researchers identified short-term thinking, a fragmented approach and inadequate priority setting as the main institutional problems. To solve these problems, election reform is necessary, especially to increase the accountability of members of parliament, Saeima. The mechanisms should be created, with the help of relevant laws, that would prevent successful political plans and ideas from “choking in the system of policy making", and the number of foreign experts employed by the government should be vastly increased.
The researchers recommend asking for technical assistance from Scandinavian, e.g. Denmark’s tax governing bodies, to carefully check and manage the work of the State Revenue Service of Latvia (VID), in that way helping to eliminate tax evasion. “We must understand that a shadow economy cripples the economy much more severely than we tend to believe,” says A. Vanags, underlining this as one of Latvia’s key problem areas.
Calculations show that, after the elimination of a shadow economy, productivity and GDP will grow by 21%. The huge proportion of a shadow economy makes businessmen focus on the use of short-term opportunities, instead of long-term investments to increase productivity. The economy is directed towards intensive, low productivity labour activities and actually nullifies the effects of other, in many cases, useful government policies. In addition, the effects mentioned impact all economic sectors, not only those where a shadow economy can be found directly – that’s how the researchers explain the impact of a shadow economy.
In addition to the radical reduction of the amount of shadow economy, the researchers name the improvement of the education system quality and transport infrastructure as absolute priorities. The development of these areas would be a significant step towards the growth of Latvia but carrying out reforms in these areas would take a considerable period of time.
The assessment of competitiveness has been developed as an instrument for fact-based policy making, offering to create an institutional model providing sustainable monitoring of competitiveness. In the development of it, the experiences of 10 countries, including Latvia, Estonia, Poland, Czech Republic, Ireland, Croatia, Vietnam, Singapore, Jordan, Russia and Ukraine were analysed. In the research, Latvia’s institutional and intellectual capacities for the assessment of competitiveness were evaluated, and consultations with local experts and stakeholders in economic issues were carried out.
The study concluded that there must be political will to develop a permanent process of assessment and monitoring of competitiveness, and adequate and stable funding for this purpose should be allocated. Further assessment and monitoring of competitiveness should be carried out by an independent institution outside the government, for example, by establishing the Institute of Competitiveness that would branch out of an existing academic institution or by creating a new institution.
Press conference on April 20, 2012
Latvian Prime Minister Valdis Dombrovskis and SSE Riga Rector Anders Paalzow
The evaluation of competitiveness was performed by SSE Riga in cooperation with BICEPS and Ernst & Young, under the supervision of Christian H. M. Ketels of Harvard Business School.
The Latvian Competitiveness Report 2011 was commissioned by the State Chancellery of the Republic of Latvia to SSE Riga in February 2011. The Report is funded 100 per cent by the European Union through the European Social Fund.
An English-language version of Latvia’s Competitiveness Report 2011 will be posted in May, 2012.
Latvia’s Competitiveness Report 2011 (in Latvian)14.51 MB, pdf
Presentation 20.04.2012.0.39 MB, pdf