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Economic development 1920 - 1940s







Economic development of Latvia 1920 - 1940s

by Irina Jakovleva, March 2001


After the 1917 Revolution in Russia, Latvia engaged in a war trying to abandon Russia and get back the independence. Although in 1918 the war finally reached a successful and desirable conclusion for Latvia, it brought the devastation for the country’s economic situation. Foreign armies have been crossing Latvia for the pas two years, burning buildings and killing civilians. Lots of industrial equipment has been sent to Russia and never returned back. Latvia owed debts to major European countries for the supply of the military equipment. Therefore, Latvia needed to reform its economic and social structure in order to keep up with the new status as an independent state. The economy had to remain at the certain level, according to the international standards.


The strategy for improvement started with a “rebuilding” of the population, in order to promote a natural growth. The population in 1920 was reduced almost by a million, compare to previous years. Such a dramatic change occurred mainly due to wartime refugees and killed soldiers. In order to encourage people to return back to Latvia, government came up with a number of procedure to make relocation and immigration easier. As an addition, various subsidies were provided for larger families as well as to encourage earlier marriages. Although the government failed to change the age for the first marriage, it still managed to keep the birth rate higher than one of the mortality. Overall, the population grew but at a much slower rate, than had been expected.


The other major step made by the government, was the Agrarian Reform. In that period, majority of large landowners were German barons and Poles. They were all strongly against the independence for Latvia. So in order to maintain political control, government proposes the reform, that takes 9.2 mln acres (p. 125, Plakans) of the peasants’ land and allocate it between regular workers. Everyone, who wanted to be a farmer was eligible for the piece of land. Although in the beginning the government planned to give the peasants a compensation, the ex-owners did not get anything. Furthermore, the League of Nations dismissed all their complaints. Mainly, this reform resulted in a political stability but on the other hand it did harm the economy. As more and more smaller farms were created, the farmers could not use a machinery, because of lack of space and funding. Labor-based production was not even close to a possible level of efficiency.


The better times for the economy came in the 30’s after Karlis Ulmanis took over the power. Maybe his strict policies and authoritarian regime did not satisfy everyone, but economic indicators showed significant improvement. The main goal of the Ulmanis was the economic “survival” of Latvia. After the proclamation of the independence major trading partners for Latvia were Germany and England. Ulmanis managed to resurrect and maintain the good relations with USSR and thus won back the access to the Russian market, which was a key point for the Latvian exporters.


Latvia became the third largest exporter of butter in Europe. Besides food, other industries were promoted and goods like photo cameras and radios gained the popularity and recognition within the foreign markets. The image of the Ulmanis as a rational “master” influenced the citizens to seek ways to reduce costs and unnecessary spending. For instance, Latvians came up with a gasohol – mixture of gasoline and alcohol, that became a cheaper substitution for imported gasoline. Overall exports at some point rose from 1.7-5.4% range to 9-14.7% range( p.139, Plakans).

Latvia was enjoying its success for a very short time. In 1940, after the Soviet occupation the economy experienced the complete turnover. After the invasion of the huge number of Soviet troops, the country experienced a sharp decrease in economic activity. Empty shelves, huge lines and constant deficit of food were the result of this change in population. Frequent food imports from Moscow did not make any positive difference. All the industries and businesses were nationalized. That led to major strikes within trade unions and complete loss of work incentives. As a result the country experienced a sharp fall in productivity.

The “sovietization” of the agriculture appeared shortly in the form of the new land redistribution. The final goal for the Soviet government was complete collectivization of the land. Strict limits were imposed on the size of the land, available for an individual. The land was taken away from the owners and reallocated again. The “extra” free land remained the property of the state and could not be bought, sold or given away. Rumors about future plans and restriction created the uncertainty for the farmers, resulting in further drop of the production.

Another big trouble hit the monetary side of the economy. Firstly, the ruble was announced as a new common currency. The Latvian lat was devaluated. If earlier 1 lat was equal to 10 rubles, the new exchanged rate had equaled 1 lat to 1 ruble (p.31, Misiunas). The nationalization of banks created a panic within citizens. People tend to withdraw all their savings at once. Therefore the Soviet government had to impose limits on withdrawing and later to “freeze” the accounts completely with a further confiscation of money. The purchasing power of money had been declining over time. That resulted in immediate price increase. The inflation grew rapidly and in the end of 1940 wages tripled in its size. Such an uncertainty resulted in a housing problems. Citizens simply were not capable of paying the rent. In order, to resolve the crisis, government imposed the limits on the square footage of the apartment per individual. However, it worsened situation even more, as the shortage of the small apartments was created.

It seems logically, that if a tiny country joined the huge empire, its standards of living are likely to increase. However, for Latvia the history proves exactly the opposite. When regaining the independence in 1918, the country’s economy was completely destroyed. Without any significant financial aid people by themselves managed not only to restore a normal economy but during next twenty years make a huge improvement in wealth and living standard. On the other hand, after the loss of independence in 1940 the economic situation has worsen to its limits, despite the perspective “help” from the big country. Unfortunately, it turned out that Soviet system needed just one year to almost completely destroy everything that has been created and existed for two decades. So based on this example I'd say, that for successful economic development the size of the country and financial aid do not play the most significant role.






Collectivization in Latvia
by Michael Pins

Agriculture had always been the dominant component of the Latvian economy. Most farms were small and had a single owner. Farming was not only the backbone of the economy it was an indelible part of the national character when the Soviet Union annexed Latvia in 1940 it changed everything. Rapid industrialization coupled with collectivization of most farms scarred the Latvian landscape First a brief description of the state of the Latvian economy before Soviet annexation will be provided, then the features and effects of the Soviet transformation of Latvian agriculture will be analyzed. Ultimately it will be shown that the Soviet Union altered Latvian agriculture for the worse.

At the conclusion of the Great Northern War (1700-1721)) Latvia (as Livonia) became a Baltic province of Tsarist Russia until its first independence in 1918 (Then, p.7). Up to this point most all of the land was under the control of a select group of Baltic barons Holdings of large landed estates were redistributed to peasants, particularly to volunteers in the war for independence. Initially hardships were felt as Latvia lost their Russian markets. An export economy based on agricultural produce and specializing in meat, poultry, and dairy products quickly grew. Agriculture was the dominant sector when the Soviets gained their lock on Latvia in 1945.

At first the Soviet Union promised to respect the rights and interests of peasant smallholders. (A similar policy was followed in Czechoslovakia, Hungary and elsewhere). (Van Arkadie, p. 12) In 1949-50, however, collectivization was began. Agriculture was organized into the standard Soviet system of kolkhozes, sovkhozes, and household plots. Kolkhozes were collective farms with an elected management In practice, however, the "elected" managers were actually party nominees. Farmers who displeased the party by disagreeing with kolkhoz appointments or decisions vanished, presumably to Siberia. The farmers eventually learned to vote in favor of every mild suggestion from higher up. The second type of collective farm was the Sovkhoz. Sovkhozes were state farms with an appointed management Nominally, household plots and private livestock were allowed to be kept, but a number of measures were taken to make this extremely prohibitive.

Stalin's economic policy was to make agriculture bear the brunt of industrialization. Prices for the excessive obligatory deliveries in kind to the state were fixed so that they were hardly able to meet production costs (BCS, p.95). This was an attempt to force farmers into kolkhozes.

A tax system was set up whereby individual farmers paid 6,000 rubles in tax per year while collective farmers paid only 600 rubles. The process began as voluntary but forcible collectivization soon followed

411 farmers who employed hired labor on a seasonal or annual basis were deported in masses. By December 1949 90% of the farms in Latvia had joined kolkhozes (BCS, p. 97).

Not only had the countryside been deprived of some of its most productive laborers but the condition of the farms themselves quickly deteriorated. Farms were afflicted by continual interference from state officials. For instance in 1951 farmers in Latvia were forbidden to harvest barley which had ripened before the planned date. In 1949 kolkhozes were ordered to start deliveries to the state before normal harvesting so as to coincide with harvesting elsewhere ( Misiunas p. 105). Farms received orders of what to grow, when to sow and what animals to keep. Many farms were ordered to build enormous, uneconomical livestock complexes. Managers appointed by the state were criticized for poor decisions. Most farms experienced a severe lack of raw materials, equipment, and livestock. An editor of a party journal referred to "painted scrap-iron proudly misnamed agricultural machinery "(Van Arkadie, p.276). There was also a tremendous morale loss among the peasantry in the large farms: " Alienated from the soil, ordered about by officials, treated as day laborers, with little visible connection between effort and result, it proved all but impossible to devise effective labor incentives "(Van Arkadie, p. 276).

It is estimated that the net effect was to set production back by about a decade (Smith, p.164). Soon the number of kolkhozes themselves began to decline. This was a result of two things. First many of' them were merged together. Secondly, a trend towards sovchozes began The state could exert even greater control over the sovkhozes

In 1958 a great agricultural reform took place under Khrushchev. One of the major reforms was the transition of the MT-Stations. Farms were not allowed to own their own tractors; they were on the mercy of state owned machine tractor stations (MTS). These stations were dismantled in 1958 and collective farms were allowed to buy and maintain their own machinery. Already by the Summer of 1958 530 out of 807 kolkhozes in Latvia were working with their own machinery (BC&, p. 73). Compensation for goods was also modified. Compulsory delivery was abolished and price levels at which the goods were bought were raised so that they would no longer be confiscatory. High taxes and compulsory deliveries from private plots were also ended in 1958-9.

The reforms of 1958 had several important effects. It stopped the trend to leave the countryside. People began seeing that their work was worth while and the Kolkhozes began to become more efficient Living standards improved. By 1972 collective farmer's average income had exceeded that of urban workers (Misiunas, p.232). This ultimately led to a reversal of the flow and more people started to move back to the countryside.

Certain structural flaws would remain, however. For instance, there was a peculiar law that declared parents and adult children living under the same roof to be a single household (Misiunas, p. 107). This reduced the number of private cattle they could own. Any excess cattle was confiscated Calves and pigs were collectivized yet every household was required to deliver 30 kilos of meat annually from their single privately owned cow. A vicious circle formed between state demands and farmer productivity. Collective farmers concentrated on their private patches, bringing collective farming to lower productivity levels. 

Latvia's entire economic look had changed. A nation that had once been almost self-sufficient became highly dependant Once highly profitable trade with the west was replaced with an artificially low priced supply to the rest of the Soviet Union. Before Soviet annexation Latvia's economy was growing at a rate comparable to its Nordic neighbors (Shen, p.42). Milk production is a good example of how quick the gap grew after Soviet annexation By 1970 milk production per cow was 3950 kilos a year in Norway, but only 2950 kilos a year in Latvia (Misiunas, p. 233). In about 20 years Norway became 33% more productive than Latvia. It is interesting to note that production per cow was only 2110 kilos per year throughout the rest of the Soviet Union. The fact that Latvia' 5 production per cow was higher than the rest of the USSR can only be attributed to its superiority before annexation.

Latvia now finds itself far behind its once comparable Nordic neighbors. The Sovietization of Latvian agriculture achieved four major objectives: Iran forming se if-employed farm workers to state employees, collectivizing private activities, accelerating of farm migration, and destroying agrarian social fabric. These were all designed to tie Latvia closer to the state. These objectives were achieved at the cost of efficiency and standard of living.


Baltic Committee in Scandinavia." Baltic States." Sweden. 1973.

Misiunas, Rornuald., and Rein Taagepera. "The Baltic States. "Berkely, Ca: U Cal Press. 1993.

Graham." The Baltic States. "New York: St. Martin's Press.1994.

Shen, Raphael." Restructuring the Baltic Economies." Westport, Conn: Praeger. 1994.

Van Arkadie, Brian., and Mats Karisson. "Economic Survey of the Baltic States. "New York: NY University Press. 1992.



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