Western Europe has viewed the post-Soviet economies as markets for its surplus exports (especially those subsidized by the Common Agricultural Policy) and bank credit. The last thing the West wants is to help potential competitors develop in the way that it has developed itself – by protectionist tariffs, public subsidy of industry and agriculture, infrastructure spending, social-democratic regulation, and progressive taxation. The strategy is for global conglomerates to buy up property (with tax-deductible credit), while European banks extend loans to fuel debt bubbles.

This policy has left the Baltics and other post-Soviet countries economically dependent beyond their ability to pay down the debts they have run up so rapidly over the past decade.

As a result of this policy, the nations that dominated Latvia in past centuries by military power are now doing so financially, as illustrated by its recent capitulation to European Union and IMF loan conditions. This war against the post-Soviet economies imposes economic austerity similar to the dictates the IMF has imposed on Third World countries for the past half-century. The result is debt peonage and neofeudal privileges creating dependent “tollbooth economies.”

No countries outside of the post-Soviet sphere have tried such an experiment. It aims at testing how far an economy can be depressed before its population dies off or emigrates. What is so remarkable is that this is being done in the name of free markets, and even in the name of Adam Smith. Yet Smith and other classical economists defined free markets as ones free of land rent, monopoly rent and financial overhead. They developed classical value and price theory as a tool to endorse taxing this unearned income, which they deemed to be unnecessary charges in excess of cost-value, headed by land rent.

So how is the economy to recover? Neoliberals have no answer. The culmination of what they call “free market” doctrine (a travesty of what “free markets” meant to Adam Smith) is to centralize planning in the hands of creditors: the European Union, IMF and Scandinavian bank lobbyists on behalf whose creditor interests the prime minister and central bank heads have represented as against those of indebted Latvians. This is the function of neoliberal policy, after all: to shift planning out of the hands of elected officials (economic democracy) into those of the financial sector (oligarchy), mediated by international financial agencies (dollar hegemony).