Baltic sea region promoted as new model

The Baltic Development Forum Summit meets every year, bringing representatives from all the nations bordering the sea together for talks ranging from economic development, environmental protection, to security concerns. This year the Forum met in Riga, attended by regional politicians, businesspeople, educators and scientists. The Baltic Sea countries have seen their status grow during these years of global crisis, as they’ve weathered it rather well, and are beginning to believe that they may have an economic model the rest of the world can benefit from. With this in mind, the approximately 600 participants congregated to discuss ‘new realities and new opportunities’ to enhance competitiveness, investment and business development in the region.

RIGA - The Baltic Sea Region countries have a lot to share, and can be a bridge to the southern European neighbors in these times of economic crisis, was the message delivered by Minister for European Affairs Nicolai Wammen, highlighting a common theme at this summer’s 15th Baltic Development Forum Summit held in Riga.
The countries that border the Baltic Sea are very much on the path of economic recovery, having taken the drastic austerity measures - notably Latvia and Lithuania - to get state finances in order. Their economies are now growing, while southern EU countries are still deep in crisis.

Wammen says that the region can serve as an engine for change and growth for the rest of Europe, with its responsible economic policies, and “push all the EU back on track.” But this will also require closer coordination among countries, the exchange of information, as well as protection of the environment, he adds.
Indeed, last year’s Swedbank Baltic Sea Region report said that “Overall, the region is ranked among the 30 percent most competitive economies in the world.”

But can the region be a catalyst for change and a growth leader for all of Europe? Dr. Tobias Etzold, researcher at the German Institute for International and Security Affairs, says yes. Speaking to the Forum audience, he named three main messages for the future: be competitive, work towards convergence and the improve cooperation.
In terms of regional cooperation, he focuses on “multi-level governance structures, in scientific research.” This would mean more regional integration, of government bodies, structures, and closer cooperation in areas of government decision-making and spending.

And though the region “proved to be economically relatively stable and resilient through the crisis,” he warns that “[We now see] a north-south divide.” The southern rim of Europe is still struggling. It may be that the recession is easing in Europe’s third and fourth largest economies - Italy and Spain - but four other eurozone countries - Greece, Portugal, Ireland and Cyprus - are still dependent on rescue loans from the EU and IMF, writes cnn.com.

Shift to new model

Secretary General of the Nordic Council of Minister Dagfinn Hoybraten presented the idea that the Nordic Model can actually become the next “supermodel.” The Nordic Model, say its promoters, represents the Nordic welfare state: it takes the best elements of market liberalism and European socialism to produce wealthy, yet egalitarian, societies.
Hoybraten pointed out that the region, through the crisis, kept a focus on “efficiency and competitiveness, along with keeping the social parts strong. Cultural values have helped keep the level of trust in society, one that is struggling to adapt” to change. This is, in part, due to the fact that the region is populated with “smaller economies, which are more adaptable, resilient to economic downturns, as well as due to the high degree of regional integration. This is a great advantage in building a stronger society,” noted Hoybraten.

Rector of the Stockholm School of Economics in Riga Anders Paalzow agreed that “Latvia is ahead of the curve, that macro measures taken by the central government have been taken, leading to fiscal balance.” This was due to “political will and braveness,” he said, but this was the “easy” part. Next up is the euro adoption. And the need to improve the judicial system, its institutional framework remains.

And changing the ‘micro’ environment will be more difficult for Latvia. One of the problems, he sees, is the competitiveness of industry, such that it is necessary to provide “a framework for business.” Paalzow says that it is “essential to have dialogue between government and business,” which is not so productive today.
He adds that competitiveness is also about cooperation, the sharing of ideas, which allows for further growth together.
Companies need to be able to protect their ideas, property rights, but with the complexity of technology and products today, very few companies by themselves can do everything. Cooperation has been, and will be, key to companies staying ahead in a globally competitive business environment.

Parliament Secretary of the Latvian Ministry of Defense Veiko Spolitis echoed this sentiment, in discussing Latvia’s institutions of foreign affairs. He said that there needs to be not just a “framework of competition, but one of cooperation. One cannot be a ‘frenemy.’ [friend and enemy] One is either in cooperation, or a competitor. And this leads to common elements that unite us, around the Baltic Sea: human rights, and the rule of law. This is what distinguishes us from others.”

Put stress on R&D

Latvian Prime Minister Valdis Dombrovskis said that economic policy needs to focus on developing “a knowledge economy” in the region, emphasizing the need to cut the administrative burden, and increase spending on research and development. In Latvia, there needs to be “better connections between research and industry, and to ensure the Baltic Sea Region keeps its leadership as a dynamic environment. There is no room for relaxing,” he said.

The Nordic countries already have well-established structures in place, in regards to sharing information and ideas. Cooperation involves support for joint projects and activities, the publication of reports and the establishment of networks, according to a report from the Nordic Council of Ministers. It says that the general aim is to achieve results that the individual countries would be incapable of accomplishing on the own. Cooperation on education focuses on promoting creativity, innovation and entrepreneurship. And, the Nord-plus program also covers the Baltics countries.
Research and innovation programs also encourage cooperation across the region, bringing researchers and businesses together, all in the effort to strengthen competitiveness.

Trustworthy partners

Much in society gets down to trust. After all, who would do business with someone they didn’t trust? In post-Soviet society, there was none.
Globally, “There is an erosion of trust. In institutions, in private business. This has effects on paying taxes, on human rights in business,” warned member of the Supervisory Board at Citadele bank Baiba Rubesa. Wikileaks has helped to erode trust, she says.

There are things we can do to get it back, suggests Rubesa: “Transparency in contracts - all contracts should be published; have all processes digital and transparent; enforce the rule of law.”
Swedbank chief risk officer Hakan Berg, on reversing this “erosion of trust,” suggests improving, and offering, a good education system, and good work conditions for everyone. We need to talk of growth, not just austerity now, he says. There is now the need for “people to invest, for innovation and productivity. And to support this there is needed transparency, the need to understand the environment, predictability, fair competition for investors and consumers, and continuity,” says Berg.

Studies have shown that growth and economic development will suffer without trust in society. A recent report by Peter Graeff and Gert Tinggaard Svendsen looked at why the Scandinavian countries are significantly richer than Southern and Eastern European countries. Findings show that corruption in itself means that resources end up in the wrong places and not in socioeconomically optimal investments.
Also, there is a direct damaging effect of corruption on wealth creation. This implies that economic actors have to invest higher transaction and control costs to prevent corruption, wasting resources on non-productive purposes and thus destroying economic wealth.

President of Nasdaq OMX Stockholm Jens Henriksson supported this view, noting that “There is a correlation between transparency and wealth [in society] in the long run.”
Spolitis sums it up by saying that “Trust is connected with public opinion, with a free media. The Baltic Sea is an inner sea; the Baltics made the strategic choice to rejoin the EU. In the words of President of the European Commission Manuel Barroso, ‘We either swim together, or sink separately.’”