Employers’ campaign against the shadow economy, Latvia
In 2011 the Latvian Employers’ Confederation conducted a publicity campaign in the framework of the European Social Fund project, ‘Practical application of normative acts of labour relations and safety at work in sectors and undertakings’. The campaign comprised six parts, including an online test and discussions with business representatives, and targeted Latvian citizens, business people, politicians and the government.
On 3 October 2011 the Latvian Employers’ Confederation (Latvijas Darba Devēju konfederācija, LDDK) launched a national level campaign ‘Against the shadow economy – for fair competition’. The campaign included six parts: an advertisement campaign 'I spit on it' (Man uzspļaut); an online tool – a test for measuring an individual’s 'shadow'; actions involving white envelopes; a discussion with business representatives on fair competition; analysis of results of an online test and the elaboration of conclusions and proposals; and a discussion in the Latvian Parliament on combating the shadow economy in Latvia.
The campaign and supplementary events was a nation-wide measure aimed at combating the shadow economy and providing fair competition on the basis of individual involvement and an explanation of an individual’s usual habits it terms of the shadow economy. It was not aimed specifically at fighting undeclared work; however, undeclared work provides a great deal of the shadow economy.
The campaign started with anonymous advertisements in streets and the main TV media channels showing the words 'I spit on it' in yellow letters on black tape crossing a white background. Then the white background was changed to three types of picture, showing a child, pregnant women, and grandparents. At the third stage, the advertisement was supplemented with the texts 'Happy childhood?', 'Young families?', and 'Well provided old days?' respectively. The idea of the advertisement was to demonstrate the impact of the shadow economy on social provision.
On 10 October 2011, LDDK revealed its ownership of the advertisement and launched the campaign officially, as well as introducing an online tool – a test for measuring individual’s 'shadow' on www.manaena.lv. The 'shadow' accumulated based on the individual’s usual habits. Answering 11 questions in the test, individuals could discover their 'shadow' behaviour in shops, markets and communication with service providers (taking or leaving receipts on purchase), in hospitals (extra payments to doctors), transport (extra payments to policemen), employment (working with or without employment contract, undeclared income from work – 'envelope wages') and their total impact on the amount of the shadow economy in Latvia. Participants were advised how to reduce their own 'shadow', to pay the official price for service, to require receipt in shops and other shopping places, to ensure that taxi-meters were working, to use only certified fuel in cars. Among these measures there was advice to ensure that employment contracts met the requirements of the labour law, for instance, that the contract agrees the full salary, not only part of it.
On 17 November 2011, in the central square in Riga, LDDK offered passers-by white empty envelopes. With this action, LDDK stressed the fact that in surveys, 54.7% of Latvia’s population said they would rather receive more money this way as undeclared pay ('in envelope') than pay taxes, and invited the population to use envelopes for better purposes than paying and receiving undeclared salaries. For instance, envelopes might be used to congratulate Latvia in its birthday on 18 November.
From 26 October 2011 to 15 November 2011, LDDK conducted discussion phase on the shadow economy with business representatives from different sectors. In addition to the population oriented issues covered, business representatives added analysis of the shadow economy from the business aspect. Discussions were held on the following topics: 'Purchases without receipt', 'Envelope salaries', 'Working without employment contract', 'Public procurements' and 'Smuggling'.
The results of online tests, online comments and business discussion were summarised in LDDK proposals to the government and deputies of the Latvian Saeima (parliament).
On 16 December 2011 these results were discussed at a conference entitled ‘Fair entrepreneurship against shadow economy. Management of human resources and role of tax policy in ensuring fair competition’. Joint action with Saeima was based on the 'Protocol on fair entrepreneurship against the shadow economy – the role of tax policy in ensuring fair competition', that was signed by the management of LDDK and Saeima’s speaker Solvita Āboltiņa on 21 December 2009.
The campaign was organised by LDDK in cooperation with the Health Care Employers’ Association (Veselības aprūpes darba devēju asociācija, VADDA), the Association of Latvian Spirits Producers and Distributors (Alkohola ražotāju un tirgotāju apvienība, ARTA), the Latvian Passenger Transport Association (Latvijas Pasažieru pārvadātāju asociācija, LPPA), the Latvian Authorized Automobile Dealers Association (Latvijas Pilnvaroto autotirgotāju asociācija, LPAA), the Latvian Fuel Traders Association (Latvijas Degvielas tirgotāju asociācija, LDTA), the Latvian Construction Contractor Association (Latvijas Būvnieku asociācija, LBA), the Professional Cleaning and Facility Management Association of Latvia (Latvijas Profesionālās uzkopšanas un apsaimniekošanas asociācija, LPUAA), the Association of Commercial Banks of Latvia (Latvijas Komercbanku asociācija, LKA), the Latvian Association of Gaming Business (Latvijas Spēļu biznesa asociācija, LSBA), as well as following companies: RIMI Latvia, Latvian Railway (Latvijas Dzelzceļš, LDz), Latvija Statoil, Lattelekom, Microsoft Latvia and Aldaris.
The target group of the whole measure was the Latvian population, business people, politicians and the government.
In the discussions participants were from: LDDK, VDI, the State Revenue Service (Valsts Ieņēmumu dienests, VID), LBAS, LPAA, LBA, LPUAA, global management consulting firm Hay group, LKA and LDz.
Outcome of evaluations: lessons and conclusions
Achievement of objectives
The campaign coincided with government’s efforts in implementing of the 'Action plan for combating shadow economy and ensuring fair competition in 2010–2013'. However, it is difficult to distinguish the impact on each particular measure, including the LDDK campaign, on reducing the shadow economy.
The whole campaign attracted the population's attention and provided involvement. The 'I spit on it' advertisement was discussed in social networks almost immediately after it appeared. Discussions covered issues such as reasons for and consequences of tax avoiding tax, the quality of public services and the efficiency of the state management. The low efficiency of public spending and low level of public services was often mentioned as a reason for tax avoidance, but individuals’ own habits were also critically assessed.
Obstacles and problems
When the campaign started, the economic background was extremely unfavourable– the crisis impact and lack of cash was felt in families, enterprises and the public sector. Incomes were reduced and the population's trust in the government was low, while the campaign was focused on paying more taxes to the state budget thus reducing individuals’ and businesses’ income even more.
In case the audience did not support the campaign, in order to secure its reputation the LDDK had elaborated a crisis communication plan for the campaign aimed at explaining the motivation to carry out the campaign right at that time.
It was difficult to agree on starting the campaign internally in LDDK, especially regarding the associations where large a share of SMEs disagreed on the usefulness of the campaign because, for many, avoiding taxes seemed to be the only way to survive.
The results of the campaign were summarised into seven reasons for the shadow economy, four general strategic directions of activity in combating the shadow economy and six strategic proposals for immediate discussion and implementation.
- companies, including media companies, that in terms of the Latvian anti-shadow policy might be characterised as 'white companies' supported the campaign more than those who operated in the grey economy or close to it;
- such campaigns should have financial support from the state or EU funds, because it is national scale measure focused on changing attitudes and behaviour of individuals in entire society;
- in by-passing conservative communication and using provocative advertisement slogans and methods LDDK attracted a wide audience and was able to determine to some extent the government's action plan in fighting the shadow economy.
From opening on 10 October 2011 to 7 November 2011, 12,657 individuals have filled in the test at www.manaena.lv, among them more than 785 in Daugavpils (a city with 103,396 inhabitants in total), 248 in Ventspils (42,552 inhabitants) 785 in the Madona administrative unit (27,726 inhabitants), and 235 in Jekabpils administrative unit (5,758 inhabitants). Up to now, about 14 thousand IP users have visited the test. It is planned that www.manaena.lv will be supplemented with a section informing users about the results of the campaign.
Up to the beginning of November 2011, opinions from the population on the shadow economy and measures to eliminate it were received every five minutes.
During the action on 17 November 2011, white envelopes were distributed to 1,458 passers-by.
The online test is still open. It is connected to the largest social networks Facebook, Twitter and the local draugiem.lv. (www.draugiem.lv/manaena.lv; http://www.twitter.com/manaenalv and www.facebook.com/manaena.lv)
The measure may be applied in other Member States.
Latvian Employers’ Confederation; www.lddk.lv
Darba tiesību problēmjautājumu izpēte nedeklarētās nodarbinātības gadījumos un darba tiesību aizstāvības rīcībstratēģiju modelēšana (The study of labour rights core problems in case of undeclared employment and the strategy of action modelling for defence of labour rights). ESF project Practical application of normative acts of work relations and safety at work in sectors and enterprises, identification number 1DP/126.96.36.199.2./08/IPIA/NVA/001, Free Trade Union Confederation of Latvia, Baltic Institute of Social Sciences, Rīga, 27 May 2011. (In Latvian).
Grozījumi Pasākumu plānā ēnu ekonomikas apkarošanai un godīgas konkurences nodrošināšanai 2010.-2013.gadam (Amendments in the Action plan for combating shadow economy and ensuring fair competition for 2010–2013) http://www.likumi.lv/doc.php?id=231687. (In Latvian).
Nereģistrētās nodarbinātības novērtējums (Estimation of undeclared work). Latvijas Universitāte. Study of the National program Labour market research conducted by the Ministry of Welfare and funded from the European Social Fund. Riga, 2007, http://sf.lm.gov.lv/esf/index.php?main_page_id=5&page_type=d_cat&second_page_id=31. (In Latvian and English).
Sauka, A. Putniņš T. Baltijas valstu ēnu ekonomikas indekss (Shadow economy index of Baltic States). Presentation of the research. SSE Riga, 2011. (In Latvian).
Action plan for combating undeclared employment 2010–2013. http://www.mk.gov.lv/doc/2005/LMpl_170210.13.doc. (In Latvian).
Action plan for combating shadow economy and ensuring fair competition for 2010–2013 http://polsis.mk.gov.lv/LoadAtt/file29107.doc. (In Latvian).
Implementation of the Action plan for combating shadow economy and ensuring fair competition 2010–2013. http://www.fm.gov.lv/files/tausaimnieciba/nuekonomika/Enu_plana_progress_23032012.doc. (In Latvian).
Schneider, F., Buehen, A. Shadow economy in Latvia and other European countries: What we do(not) know. Presentation at the conference Shadow economy in conditions of crisis, Riga, 1 October 2010.
VDI darbības pārskats, 2011. gada 1. pusgads (Report on VDI activities, first half of 2011).
Raita Karnite, EPC Ltd.