Who Stands in the Way of the Rule of Law?

03. jūnijs, 2011


Vjačeslavs Dombrovskis

Like many other people, I am not in a good mood today. You might say I am quite pissed. And yet, one needs a cool mind to put all that has happened inside a bigger picture, so that the options become more clear. This is what I will try to do here. As a result, the answer to the question posed in the title is not what you probably think it is. Let me explain.

Lets start with why the rule of law is so important. At least 99% of people in this country don’t fully get it. Empirically, there are tons of evidence rule of law is one of the most important determinants of long-term economic growth (I can supply the references). But why? On a fundamental level, this is about protection of property rights against arbitrary use of power by profit-maximizing individuals. Only when there is rule of law both for the local entrepreneurs and foreign investors have proper incentives to invest, produce, and add value. Less rule of law means more uncertainty, greater risk of arbitrary expropriation. More uncertainty means less investment, less value-added. How to ensure the rule of law? The only technology we know is to disperse power by creating institutions of checks and balances. For example, an independent central bank is one such institution. It makes it harder for those who control the government to use the inflation tax. Those in Belarus, for example, are now learning the hard way what it means not to have such an institution.

We have many of the right institutions because we copied from the West. But we don’t have the rule of law. Why? The reason is that the ‘oligarchs’ do not want their power to be constrained and, therefore, seek to neutralize the institutions of checks-and-balances. They do it by placing their associates or, better, the most mediocre and incapable individuals they can find, in charge of these institutions. This is what the recent events with the appointment of the general prosecutor, various judges, ombudsman, and the presidential elections are all about. Sometimes, they miscalculate and those they thought docile and mediocre turn out to be something else. I believe these are the stories of Mr. Zatlers, Mrs. Vike-Freiberga, Mr. Loskutovs, and some others.

Yesterday’s election was just one more such event – an attempt to neutralize an institution that can constrain the power of the parliament (and the government). Of all the possible candidates that could be imagined, Mr Berzins, arguably, is the worst. In just a few weeks since the now elected President was nominated, the journalists already managed to raise many questions about the past of Mr. Berzins. For example, there are allegations of what seems like fraudulent use of EU funds. There are also serious questions about adequacy of Mr. Berzins pension (probably the highest in the country), which was calculated based on an outrageously high (some say at least twice as high that bank CEOs earn today) salary as a CEO in a state-owned bank. Will Mr Berzins surprise his former associates? Time will tell…

The practical question, of course, is what can be done to stop the subversion of democracy in this country. Some people seem to crave the hopes that the forthcoming election will result in a decisive victory for the anti-oligarch parties, with a resulting majority in the parliament. Such thinking is delusional.

The distribution of seats in the parliament reflects deep divisions within the Latvian society. As far as most voters are concerned, these divisions are more important than (to them), than some abstract idea of the rule of law. These divisions are well-known. First, people are divided along ethnic lines. Indeed, the increasingly obvious complicity of the Harmony Center in the subversion of democracy says something about the sheer confidence this party has in its voters (and its influence in the media that cater to Russian-speakers). HC politicians seem to feel they can get away with nearly anything. Second, there are farmers and those living in the regions. Many of them are dismayed by what they see as irreversible decay of the countryside, they loath those arrogant city liberals, and they are instinctively opposed to anything foreign. This makes for good material for the propaganda machines that oligarchs’ money can buy. All in all, it is naive to think that these large groups of voters will think that some abstract idea of rule of law is more important than their present afflictions. In other words, there are good reasons to believe that, in a matter of just a few months, we will see substantial changes in the disposition of political forces in the parliament.

Thus, today’s parliament is probably a good approximation of what the next one will look like – except, of course, that PLL might not make it. So lets look at what makes the oligarchs powerful in this parliament. There are three possible minimum-sized majority coalitions. One of these coalitions has no oligarch parties, i.e. no Greens and Farmers, and no PLL. In a parliament like this, the oligarchs certainly have influence, but this influence is severely constrained by the possibility of a coalition without the oligarchs. Unfortunately, this is not how things work in this country. What we have is an unwritten rule that ‘Russian’ parties cannot be admitted to the ruling coalition. To date, no ‘Russian’ party ever was. So lets repeat the coalition calculus subject to this unwritten rule.

Number of minimum-sized majority coalitions (without HC)? One.

Number of minimum-sized majority coalitions without the oligarch parties? Zero.

Clearly, oligarch(s) have a lot more influence where a large group of voters is effectively excluded, yet majority coalitions must be formed.

Now we are in position to answer the question of who stands in the way of the rule of law. It is tempting to say: oligarchs, or those who chose complicity, like HC. These explanations, however, only amount to proximate causes. Arguably, the nature of oligarchs is to strive be rich and to be beyond the law (which helps become richer). Do you blame a wolf for being a wolf? Or, do you blame those that set the wolf loose? Should we blame the elements that insist on exclusion of the Harmony Center (or any other ‘Russian’ party) no matter the cost, since this is what makes subversion of democracy possible? In my view, the the answer is yes.

Once more: I am not saying a coalition with HC is the best one you can have. As I wrote before, there are good reasons to believe that, over the last couple of years, Harmony Center chose to be complicit in the subversion of democracy and the rule of law. Nonetheless, the unwritten norm whereby ‘Russian’ parties are excluded from the government must be destroyed. This necessarily implies the must for a coalition with the Harmony Center at some point – the sooner, the better. There can be no rule of law as long as the Russian-speaking voters are effectively excluded from the political process.

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