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Nation-Building
in the
Baltic States
Transforming Governance,
Social Welfare, and
Security in
Northern
Europe
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For Valda, John, and Marita
and
For Janet, Meghan, Michael, and Sara
There are no simple solutions in guiding the processes of transformation
or development.
—Olaf Hillenbrand and Peter Thiery, Strategic Insights, 2005
Contents
Preface............................................................................................................ xv
About the Authors.........................................................................................xix
1 Transformation Challenges.....................................................................1
Historical Perspective....................................................................................1
World War I and the Interwar Years....................................................3
World War II and Beyond...................................................................4
Geographic Influences..................................................................................5
Geopolitical Influences.................................................................................7
Russian Revanchist Policies.................................................................7
Russian Power in Central Europe........................................................9
Cultural Influences.....................................................................................10
Demographic Influences.............................................................................11
Shrinking Populations.......................................................................11
Economic Influences...................................................................................14
Conclusion..................................................................................................18
2 Transforming the Polity........................................................................21
Establishing a Government Structure.........................................................21
Evolutionary Transformation......................................................................22
Stages of Transformation............................................................................23
Stage One Transformation: 1990–1994......................................................25
First-Stage Reforms...........................................................................26
Overcoming Barriers.........................................................................27
International Assistance............................................................28
First-Stage Reform in Estonia............................................................28
First-Stage Reforms in Latvia.............................................................29
First-Stage Reforms in Lithuania.......................................................30
Second-Stage Government Reforms: 1995–2003........................................31
Second-Stage Reforms in Estonia......................................................31
ix
x ◾ Contents
11 Managing Transformation..................................................................221
Planning for the Future............................................................................224
Principal Priorities...........................................................................225
Common Problems, Separate Goals......................................................... 226
Major Long-Term Issues...........................................................................229
Demographic Time Bomb...............................................................229
Fiscal Governance............................................................................230
xiv ◾ Contents
Unemployment................................................................................230
Education and Development...........................................................232
Conclusion................................................................................................233
References....................................................................................................235
Preface
This work is the chief product of many years of our observations, discussions, read-
ings, and policy analyses on Baltic state progress in changing from Soviet republics
to regained independence. It reflects many aggregated transformations undergone
in the three crossroads countries—Estonia, Latvia, and Lithuania. The knowledge
gained about these changes far exceeds what would constitute a single article on
innovation and development in the three Baltic states. Our hope is that Baltic
scholars will accept the volume as a topical and valued addition to the literature on
this important corner of northern Europe. A second goal is that it contributes to
more comprehensive understanding of the theory of transformation (Shaw 1997).
For more than twenty years, we have followed issues of development from
Thailand to Tunisia. In the Baltic states, we have observed the initial euphoria of
freedom regained, noted special difficulties and achievements, as well as the most
disappointing policy mistakes. In this context, we are also mindful of the damage
that painful social memories and mutual distrust may have caused. Crossroads
countries, such as the Baltic states, are under variable influences of hostile or friendly
neighbors. They simply are more exposed to external influences than others are.
We have noted the effects of various factors of economic and social adjustments,
and we are pleased with the early, though differentiated, progress shown in all three
countries (Estonia, Latvia, and Lithuania). We liked the stubborn—even aggres-
sive—commitment to high quality in Estonia, the more cautious nature of individ-
ual Latvians, and the unlimited Lithuanian love of their country. We also searched
for and examined issues that explain the differences of character, the national per-
formances, and the relatively slow changes in the three countries. Among others,
we were guided in our comparative analysis approach by such early works as Adam
Przeworski’s The Logic of Comparative Social Inquiry and the four volumes of Alan
Zuckerman’s Comparative Political Science: Regime Structure and Change.
To learn more, we traveled about in the Baltics, read and listened a lot, resided
and taught in the three states, designed and conducted surveys, and arranged stu-
dent and faculty exchanges. Our research methodology followed that described
by Creswell and Clark (2011). In our interpretation of the collected data, we were
guided by the comparative inquiry approach as described by Chilcote (2000). We
xv
xvi ◾ Preface
learned about factors advancing and delaying innovation in various countries over
several hundred years. The chapters are developed from two sources of data that
were gathered in a variety of research methods. These included analyses of existing
data and secondary literature from a variety of sources, as well as findings from
our own empirical research in the Baltic states employing both quantitative and
qualitative methods.
For our most formal research, we chose diverse issues that were material to
managing private and public development. It is the answers to these selective inqui-
ries that we used to prepare this volume. We have shared our teaching experience
and our research findings on a regular basis with our colleagues in the Baltics and
at conferences on Baltic studies and in learned journals. This has been most helpful
for the study of the diverse topics examined. Our hope in preparing this review is
that the range and depth of the assessments of social institutions will aid under-
standing of the problems faced by the region’s ongoing transformation and help
facilitate the private and public sector cooperation for years to come.
local government; they provide a means for citizens to participate in their gover-
nance by exercising political rights; (3) the diverse system of social networks that
range from the family to membership in civic and fraternal organizations; and
(4) a market economy and political ethos that flourish under the rule of law; they
celebrate public ownership of the mechanisms of production and consumption and
ownership of private property. The last chapter in this section examines the progress
in building democratic institutions in the Baltic states.
Then we turn to a review of the progress made in strengthening what we believe
are three key social functions of government in what the EU describes as its social
market system: the provision of social welfare services that meet the needs of all.
It does so with equality and dignity; creation of a comprehensive education sys-
tem that prepares all citizens with the knowledge and skills needed for economic
growth in this and the future economy; and by maintaining a fair, stable, and reli-
able system of fiscal governance, providing necessary revenues through means that
enhance rather than curtail economic growth, and does so while ensuring transpar-
ency and fiscal discipline.
We later shift our focus somewhat as we turn from our examination of past prog-
ress in transforming the social and political aspects of the Baltic states to an examina-
tion of two future-oriented factors. Chapter 10 is a brief look at the security issues
facing the region, given its geopolitical position and the unpredictable and continuing
aggressive activities of Russia. In Chapter 11 we review the process being followed by
the Baltic states as they continue working on EU-sponsored plans for development
over the next several decades.
Our analyses are based largely on experiences gained during our assignments
in the Baltic states first as visiting university professors and private advisers, and
subsequently as Fulbright senior specialists, and upon a lifetime of Baltic-area
watching. Our on-site notes are supplemented by monitoring public reports, by
observations and collegial discussions in the field, and by the senior author’s par-
ticipation as a long-time consultant on the formation of one of the Baltic states’ civil
service schools and three business schools. The popular literature elements of this
study are, for the most part, reports as published in English language Baltic-area
publications, books, the Internet, and scholarly periodicals such as the Journal of
Baltic Studies and Russia in Global Affairs. The information sources available in the
English language are listed in bibliographic references.
We were extremely fortunate to have the early help of our American and Baltic
colleagues. These cooperative ventures started in the heady and very open period
of freedom when many professional relationships were easily made. We regret that
we cannot fully acknowledge the immensely valuable contributions made by all of
our colleagues over the years. We do extend our special thanks to the colleagues
and institutions that were most helpful to us in shaping this volume on transforma-
tion as a process of national development. The help received from Pacific Lutheran
University, the Fulbright Commission, the International Exchange of Scholars, and
the U.S. Department of State is acknowledged with special thanks.
xviii ◾ Preface
In concluding this preface, we find that any massive, single explanation of recent
Baltic developments must extend beyond economic analysis and historical reviews.
Our goal has been to ensure that the broad picture of development of selected social
and political trends and insights gained in our searches and evaluations of sepa-
rate development issues we present in the following pages contributes to the body
of knowledge about the Baltic states in general and specifically on the processes of
national transformation. Not surprisingly, we found that the mindsets and social
values that date back hundreds of years still play important roles in shaping attitudes
and values in the region. We also found that some aspects of foreign domination of
crossroad countries could be constructive as well as have a destructive impact.
We regret that we have not been able to make judgments on the long-term effects
of demographic fluctuations in both rates and emigration. To our knowledge, the
most influential factors contributing to increasing birth rates are early marriages
or cohabitation. Conventional proposals for remedial actions by Baltic state gov-
ernments are indeed chimeras and not likely to generate desired changes in either
migration or fertility rates. What is certain is that this complicated and uncertain
situation will be one of the key forces shaping the future of the Baltic states.
Our hope is that our insights and observations are seen as significant enough for
a volume based on broadly structured research and that the conclusions expressed
help to improve national planning and resource management, as well as foster pri-
vate and public cooperation for years to come. We owe a heavy debt of gratitude to
the many scholars referred to in the book and wish readers to recognize that any
errors or misconceptions are ours alone.
Finally, we thank Lara Zoble, our acquisitions editor, Jay Margolis, our project
editor, and the rest of the editorial staff at Taylor & Francis for their efforts in pro-
ducing this book.
About the Authors
Gundar J. King, professor and dean emeritus of the School of Business at Pacific
Lutheran University, was born and raised in Latvia where he graduated from the
Riga First State (Classical) Gymnasium. The author of many articles and books
for managers, he holds a Stanford PhD (business) degree, the Dr. Habil Oecon
degree granted by the Latvian Science Council, and the Dr. of Science (h.c.)
degree awarded by the Riga Technical University. The founding president of the
Association for the Advancement of Baltic Studies, he is also an international mem-
ber of the Latvian Academy of Sciences.
David E. McNabb, professor emeritus at the Pacific Lutheran University, has been
a visiting professor at the Stockholm School of Economics–Riga, the American
University in Bulgaria, University of Maryland University College–Europe, and
the University of Washington–Tacoma. He is currently an adjunct professor at
Olympic College. He earned a PhD in administration from Oregon State University
and an MA in communications from the University of Washington. His current
research interests focus on Baltic-area public policy and on research methods. He is
the author of eight books and nearly 100 articles and conference papers.
xix
Chapter 1
Transformation Challenges
This book is based on studies conducted over a twenty-year period by the authors
on issues of local, national, regional, and transnational policies and programs in
the Baltic states of Estonia, Latvia, and Lithuania. The focus of our research has
been the transformation of the three nations as they emerged from fifty years under
Soviet rule.
Historical Perspective
Our objective for this review of the Baltic states’ first twenty years of post-Soviet
transformation was to establish a record of problems encountered and progress
achieved by the Baltic states in selected aspects of both state and nation building.
They are the mechanisms necessary for the government to meet the needs of its
citizens. They include the adoption of new laws, the formation of new agencies and
ministries, and the establishment of new political parties and civic institutions. The
state exists as long as it is accepted by its citizens or until some other force usurps
the power and mandates new institutions.
1
2 ◾ Nation-Building in the Baltic States
A nation, on the other hand, is the product of ethnic values, historic norms, and
traditions of a distinct common culture; it is the manifestation of that culture. It
exists in the minds and hearts of a people as much as it does in the community of
nations. A national culture exists for centuries—often underground—and is most
formally expressed in the language and folk arts of the people. The nation is thus a
composite of the longer-lasting values, beliefs, and commitments of a demos; it can
survive in spite of domination by outside forces seeking its demise. The proof of
this is the fact that the Baltic nations existed despite the policies of Russification of
the Baltic states first by Tsarist Russia and then again with even greater malevolent
intent by the USSR.
The Russification of the Baltic states that occurred in two main thrusts could
not eliminate the local ethnic pride, despite the long years of trying. The first thrust
began in the 1880s as the Tsarist government implemented a policy to reduce the
power of the Baltic-German land-owning nobility. Baltic-German administration
of the region was seen as a danger to the unity of the empire. Indeed, the expan-
sion of the German Empire after 1871 included plans to absorb the Baltic states
(Kasekamp 2010).
The second thrust began with the 1940 seizure of the Baltic states by the USSR.
Beginning immediately after absorption of the states into the Soviet Union, local lead-
ers and intellectuals were either killed outright or deported to central Russia; Russian-
speaking reliable Communist Party members were appointed to major administrative
positions. The policy was interrupted during the brief period of Nazi occupation.
In both periods, Russification had two main aspects: cultural and administra-
tive. The Russian language became the conduit for both. Russian was the state
language of administration. In the early period, religious institutions also played
a role; Russian Orthodox churches were built in important locations in all major
Baltic cities of the empire along with monuments to heroic Russian figures. The
aim of this policy in Estonia and Latvia was to keep the population from becom-
ing Germanized; in Lithuania, the focus was also on countering the influence of
Poland and the Catholic Church.
The first Russification did not include the planned colonization of the Baltic
states by ethnic Russians. However, the industrialization of the region—particu-
larly in Estonia and Latvia—did result in the immigration of officials, as well as
skilled and unskilled workers and their families. These colonists brought with them
the values and customs of Russia, including a tradition of chauvinistic, arbitrary
and often corrupt, highly centralized decision-making.
The Baltic states have a particular importance in current relationships between
Russia, the EU, and the West. Their geographic location between Russia and the
Baltic Sea places them in a position to function both as a crossroads for trade
between the East and the West, and a barrier to Russian further integration and
policy dominance over Europe. The Baltic states have long served in this role as cor-
ridors for the sharing of political, cultural, and economic ideas and trade between
Europe and Russia. It is no wonder that the region continues to play an important
Transformation Challenges ◾ 3
role in the economic, political, and military policy planning of both Russia and the
West. The region’s perceived decline in the West’s power and the resurgence of the
apparent renewed imperial aspirations of Russia make this a particularly relevant
time for the analysis.
networks and technical and academic colleges and universities. By 1939, the pro-
portion of students in the Baltic states was among the highest in Europe.
The brief experience with independence from 1918 to 1940 saw the Baltic
states facing highly invasive external forces similar to what they had to surmount
for centuries in the past. By the late 1930s, democratic institutions had reverted
to authoritarian control. Small countries unable to provide an adequate defense
against aggression, they were of necessity forced to adjust their foreign policies to
changing realities.
While for Western Europe the victory over Nazism also meant victory
over totalitarianism, in Eastern Europe one form of totalitarianism was
replaced by another and the victory over Nazism was interpreted as a
Communist victory. (Høyer, Lauk, and Vilhalemm 1993, 39)
Geographic Influences
Geography has played a key role in the troubled history of Northeast Europe in the
past, and continues to do so today (Hartman 1992; Berg 2008; Kasekamp 2010).
Geographers, economists, and political scientists distinguish the post-communist
region of Eastern Europe into several different subareas. At the broadest political
distinction, post-communist Europe consists of two very different bodies: (1) former
republics or official territories of the USSR, and (2) the quasi-independent client states
grouped together into what is referred to as the Soviet Bloc or the Warsaw Pact nations.
At the next level, divided more by geography, are the Northeast, East-Central,
and Southeast regions. Excluding Russia, the Northeast includes the three former
Soviet republics of Estonia, Latvia, and Lithuania, and the Russian enclave region
of Kaliningrad (Figure 1.1).
A third, more inclusive, organizational scheme often used for analysis is that of
the EU’s regional policy. In this scheme, Europe is organized into five regions: the
Nordic/Baltic, Northeastern Europe, or Baltic Sea Region (the three Baltic states,
Finland, Sweden, and Norway); the Visigrad or V4 region (Poland, Czech Republic,
Hungary, and Slovakia); the Danube region (thirteen countries with special inter-
ests in the Danube corridor); Western Europe region (the traditional Franco-
German European core with the Benelux countries); and the Mediterranean region
(the largest group with thirty-nine countries with focus on the Mediterranean Sea).
Estonia, Latvia, and Lithuania are crossroads countries long forced to live an
uneasy existence that was often challenged by the acquisitive interests of neighbor-
ing larger powers. By any definition, today the Baltic states are small (Lamoureaux
and Galbreath 2008). In terms of the region’s demographic and political vulner-
ability to outside threats, this smallness becomes an absolute term when compar-
ing the states with their near neighbors such as Russia, Poland, and Germany. In
demographic terms, for example, Estonia has the smallest population and territory
of the three. Yet, despite its large Russian minority, it maintains a more indepen-
dent ethnic-Estonian character than its close neighbor Latvia. Latvia has a larger
and much more influential Russian minority population. Lithuania has a much
smaller Russian-speaking population and is better able to cope with ethnic separat-
ists. Moreover, its long historical ties with Poland direct its sense of belonging to
Europe and away from the East.
The complicated history of the three states has been dominated by the hege-
monic ambitions of the great powers located on the shores of the Baltic Sea. In
ancient times, these future nations were identified only as tribal communities at
6 ◾ Nation-Building in the Baltic States
Figure 1.1 The Baltic states in their larger environment (Google Maps, 2009).
the crossroads of important trade routes. Fought over by Danes, Germans, Poles,
Russians, and Swedes in the last millennium, they were ruled, directly or indirectly,
by the Russian empire for two centuries following the Great Northern War. They
were successful independent states in the interwar period after World War I, but
were annexed by the Soviet Union in 1940. They regained their independence when
the Soviet Union collapsed in 1989.
The Baltic states are perceived first as members in their own group, second as
recent member states of the EU, the North Atlantic Treaty Organization (NATO),
and other alliances. They present not only substantial differences in their develop-
ment and recent achievements, but also they share much history—in particular, the
impact of foreign rulers. A more inclusive view includes the Baltic states as parts
of the weak Holy Roman German empire, the Polish-Lithuanian Commonwealth,
the Scandinavian kingdoms, and Russia in its various configurations. Lastly, the
increasingly important Baltic intraregional relationships include ties with other
neighbors, partners, and associations.
Transformation Challenges ◾ 7
Geopolitical Influences
It should not be surprising that citizens of these former USSR republics and asso-
ciate states have been sensitive to such expressions of benevolent attitudes as the
visits of heads of states of Western powers to the region on the one hand, and of
statements that can be interpreted as potentially damaging to the status quo on the
other hand. Writing specifically about Latvia’s post-Soviet transformation, but in
fact addressing the condition of all the Baltic states, V. O. King (2012) noted that
their geopolitical positions and demographic makeup interacted with their cultural
and historical traditions created a set of challenges that shaped the outcome of their
struggle for independence, and which were mostly avoided by other former Soviet
republics (Linz and Stepan 1996).
The responses to these challenges by citizens of the Baltic states, however, were
not uniform, and are not likely to be in the future. To a large degree, they depend
upon feelings of security held by the population in each country. In the Baltics,
feelings of insecurity are most pronounced in Latvia, which has the largest mass of
unassimilated Russian immigrants who remained in the country after the collapse
of the Soviet Union. Those Russian loyalists, including a large number of reserve
officers and bureaucrats, are supported by former residents of Belarus and Ukraine.
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