The Baltic restorations certainly deserve the status of paradigmatic modern restoration cases not only because they happened at the time when the share of survivors socialised under the original system was already approaching the critical threshold, separating token or ‘true’ restorations from reversals of a different kind. Only in Lithuania (if we accept the partisan underground state thesis) was the situation less dramatic. The determined affirmation in the legislation of contemporary Baltic states of their identity with states de facto extinct 50 years ago but still internationally recognised de jure is another reason. The most important reason to consider them as paradigms of modern restorations however is the following: the post-communist development of the Baltic countries was even more decidedly restorational than that of the French Bourbons in 1815–1830. Therefore, they may be much more instructive for the theorisation of modern restorations.

Like the Baltic countries, France was occupied twice during the post-Napoleonic reversal (in 1814 and 1815–1818). However, while foreign occupation served to import revolution into the Baltic countries (Senn 2007), to France it brought the Bourbon restoration in 1814–1815 (and democracy restoration to Austria and Germany in 1945). The post-Napoleonic occupation of France did not encompass the entire territory of France, and its sovereignty was never questioned. It was only limited during the partial occupation (extending to strategic locations) of France in 1815–1818. Very differently, the Soviet occupiers completely destroyed the Baltic states, which survived only de jure due to non-recognition of their annexation by key Western powers. Under both de facto and de jure continuity of the French state, the French restorations in 1814–1815 involved only restoration of the prerevolutionary political regime and a ‘legitimate’ dynasty in the surviving state, which for some time was ruled by ‘illegitimate’ usurpers of various sorts.

The restored regime was a constitutional monarchy, resembling that which existed in France from 3 September 1791, when the National Assembly adopted its first written constitution, until 21 September 1792, when this constitutional monarchy was succeeded by the First Republic. There was no restitutio ad integrum or reversal to the status quo in 1789. Remnants of the feudal system (of feudal rights existing as of 4 August 1789) were not restored. Expropriated ‘enemies of the people’ or their heirs received only financial compensation if their possessions were already sold by the state at the time of the Bourbon comeback (Démier 2012).

Importantly, the restored regime did not retaliate by expropriating the post-revolutionary elite, which comprised many buyers of the possessions of the expropriated prerevolutionary elite. Even members of Napoleon’s family were allowed to hold onto possessions that were deemed their private property in 1814. Napoleon himself was no exception, dying on 5 May 1821 in exile with ample private means to generously reward his closest loyalists in his last will (Roberts 2014: 798–804). Only after Napoleon’s Hundred Days in 1815 were Bonapartist officials and military officers purged, and surviving members of the National Convention who had voted for the death sentence for Louis Bourbon in 1793 were punished (Démier 2012).

In comparison with the French restoration, which is commonly perceived as a classical or ideal typical case of modern restorations, the Baltic restorations were much less compromising with respect to the legacies of Soviet occupation. They were much more encompassing and radical despite an intermediate period twice as long (50 years vs. 25 years) in duration. Besides the restoration of independent states, the Baltic restorations included restorations of democratic political regimes that were already defunct at the time of their Soviet occupation. This is most obvious in the case of Latvia, where restoration of the independent state was completed by the reinstatement of its democratic Constitution of 1922, broken by the authoritarian coup enacted on 15 May 1934 by Prime Minister Karlis Ulmanis.

With too few survivors from the first Lithuanian democracy in 1920–1926, the restoration of democracy in Lithuania was a type restoration. In 1932–1934, the Estonian democracy suffered a severe crisis, related to struggles over acceptance of a new constitution, which had to correct the perceived shortcomings of the super-parliamentary constitution of 1920 (Kasekamp 2000). Due to the authoritarian features of the 1937 Constitution and the tarnished reputation of the 1920 Constitution, democracy was restored on the foundation of the new 1992 Constitution.

Most importantly for the thematic focus of this book, Baltic restoration involved the restoration of a market economy based on private ownership of the means of production (capitalism). This restoration included the restitution of property rights or compensation of former owners, while the post-Napoleonic restorations did not involve the restoration of feudalism as the socio-economic system. The accomplishment of three restorations at once makes the Baltic restorations the most pronounced and sociologically interesting case of modern restorations. The ternary character of restoration makes the Baltic restorations unique also in comparison with other post-communist restorations, which mostly involve the restoration of capitalism and only in a few cases (Czechia, Slovakia, Poland, Hungary) also the restoration of democracy.

Property restitution was a central issue in the post-communist restorations because the Marxist variety of socialism considers private property over means of production as the key evil of capitalist societies, while proponents of the French Revolution and its clones in other countries only fought against the inheritable legal privileges of the noble estate and serfdom. Therefore, socialist revolutions violated private property rights on a much larger scale in comparison with the French Revolution and its clones. However, as it happens, it is much easier to reverse socialist nationalisations than it is to conduct more limited property redistribution, as was the case in the French type (bourgeois) revolutions. This was related to the very different fate of nationalised property. During the revolutions of the French type, it was sold off to new proprietors. In the revolutions of the Russian type, it remained permanently as state property, although a significant proportion (first of all, housing) was allocated to new individual users.

Paradoxically, the socialist system did not have determined defenders because nearly all members of the population could expect to win from its dismantling, at least in the short run: by participating in the mass privatisation of public property, represented by state and cooperative enterprise assets. Among all the participants of privatisation, members of the former communist elite (nomenklatura) were best qualified to become members of the new capitalist class because they had the political, intellectual and social capital necessary to identify and to appropriate the most profitable assets (Szelenyi and Szelenyi 1994; Eyal et al. 1998; Szelényi and Mihályi 2019). The third (in Russia) or already second (in most East European countries) generation of nomenklatura defected ruined socialism because being a member of the capitalist class under restored capitalism was much more attractive than membership in the service class under state socialism (Norkus 2014: 485–493). The ‘defence of socialism’ was never an issue or bone of contention in any of the violent conflicts (with the Yugoslavian wars as the most notorious case) that unfolded during the capitalist reversal.

Among capitalist restorations, the Baltic restorations are the most instructive example illuminating the meaning and implications of the divide between type and token restorations. To recall (see Chap. 2), token capitalist restorations are represented by countries where restitution of the private property rights of former private owners preceded or took place simultaneously with the privatisation of public property. Type restorations are represented by countries where privatisation proceeded without restitution, or very limited restitution took place after most public assets had already been privatised. This was limited to a few retrospective adjustments in the results of already nearly complete privatisation.

Importantly, some cases of privatisation without restitution (Albania, Moldova) and those of only corrective post-privatisation restitution (Montenegro, Serbia, Northern Macedonia, Bosnia and Herzegovina) are in countries where a socialist revolution occurred after 1940 (Bazyler et al. 2019). They demonstrate that demographic continuity between pre-socialist (or pre-totalitarian) and post-socialist societies is a necessary, but not a sufficient, condition of token restoration. Metaphorically, the choice was between considering the post-communist condition as a palimpsest from which communist-era texts were to be cleaned and then using it as a clean sheet on which to write a completely new text once more, or as a palimpsest to be cleaned in order to recover ancient text (property rights before communist nationalisation), which should be restored before making additions. There was no strict demographic determinism regarding which one of these choices was taken, provided that communist nationalisation did not take place two generations prior, which made restoration of the ancient text (i.e. property rights) impractical.

The question of whether restitution in the countries that still had a considerable share of survivors from pre-communism happened or not depended on the particularities of the local configuration of the political field. Arguably, the absence of property restitution in Moldova (Gorton 2001) was related to its self-definition as a new state, composed of two parts with a very different political history in 1918–1940. On the other hand, the context of the simultaneous restoration of an independent state and democracy can be expected to favour radical private property restitution policies. Indeed, this is what happened in the Baltic states (or so I will argue). However, there were marked differences in the restitution policies even between these three most conspicuous cases of modern restorations. Therefore, the case study of Baltic capitalist restorations helps to replace the dichotomy of token and type restoration with a more differentiating picture, which discloses differences among countries that belong to the token variety of restoration.

These differences are related, firstly, to the extent to which restitution took into account the interests of present individual users of the once nationalised private property. Secondly, there were cross-country differences in the role accorded to compensation payments and to restitution in kind, satisfying the interests of former owners and their heirs (Kuti 2009: 127–204). To recall, under the Bourbon restoration, restitution in kind took place only if nationalised assets were still state property as of 1814. Otherwise, only financial compensation was paid. Under post-communist restorations, restitution in kind prevailed because most nationalised assets remained state or collective property by 1989. However, there were cross-country differences in the choice between these restitution modes.

Thirdly, these differences were related to the share of assets, which was subject to restitution, in the total mass of assets which were subject to property reform, encompassing restitution (reprivatisation) and privatisation. With the exception of a few countries (Poland, former republics of Yugoslavia), where family farms survived as the dominant economic agricultural units, agricultural production in the socialist economies was based on collective farming. Collective farms were established during forced collectivisation. Restoration of capitalism in the agricultural sector involved decollectivisation and restitution of land ownership rights to former owners or their heirs (Swain 1999). However, on the eve of socialist nationalisation and collectivisation, formerly socialist countries widely differed in the level of their urbanisation and industrialisation (Aldcroft 2006; Berend 1998; Kaser and Radice 1985, 1986a, 1986b).

So, in the countries which were at this time mainly rural and still not industrialised (e.g. Bulgaria, Romania), relatively less real estate (besides land) was nationalised and was thus subject to reprivatisation. In these countries, many former owners or their heirs migrated to cities during the socialist period and were no longer employed in the agricultural sector at the time of capitalist restoration (Verdery 2003). However, there were a few countries (East Germany, Czechia, Hungary) where urbanisation and industrialisation were advanced before socialism. In these countries, reprivatisation encompassed not only land but a significant share of urban real estate (residential houses and industrial objects) (Blacksell and Born 2002).

Conflicts of interest between present users and former owners were strongly present in all token restoration countries. There were two typical cases or situations of such conflict. Firstly, on many plots of land formerly used in agriculture or forestry, individual and communal houses, industrial objects and real estate objects were constructed during the socialist period. Their present users were interested in becoming owners of the land on which their property was located, while former owners had a stake in restituting their land property rights and claiming the real estate on their land as their legitimate possessions. Secondly, there were conflicts of interests between the present apartment tenants in nationalised houses and the former owners. Apartment tenants in newly built houses could use privatisation vouchers or certificates to buy these apartments, receiving them for free. Tenants in denationalised houses were now at risk of being evicted (Pettai and Pettai 2015: 202; Kuti 2009: 250–263).

The ways of resolving these conflicts did follow a certain continuum. Refusing restitution was the extreme option on one side. This amounted to the implicit recognition of the legitimacy of revolution according to the principle ex factis jus oritur (the law arises from the facts). The opposite option was restitution in kind. This was the first preference of former owners and their heirs themselves. The middle option was monetary (more preferable) compensation or compensation by privatisation certificates (less preferable). In both cases, the problem was assessment of the value of nationalised property, including the contribution of value-increasing investments during the socialist period.

There was also the special case of compensation in kind, when instead of the original object of property, a former owner or heir could receive another object of the same kind (e.g. a forest or plot of land) at a different location. Restitution in kind could be unconditional, or it was limited by restrictions related to its use by the owners. In particular, there could be a restriction on the restitution of agricultural land, providing that it would have to be farmed by the owner personally. The owners of restituted real estate property could be forbidden from evicting the inhabitants (former owners) during some specific time or increasing the rent as a way of forcing them to leave (Pettai and Pettai 2015; Kuti 2009; Swain 1999; Alanen et al. 2001).

The choice between different restitution policies was one of the most hotly contested issues in party politics during the first post-communist decade. Generally, in countries with strong ex-communist parties, the interests of present users received more consideration (Bulgaria, Lithuania, Romania, Slovenia), while in those where anti-communist parties won the first free election, the interests of former owners received precedence (Czechoslovakia, Hungary, Estonia, Latvia). Changes of political fortune were accompanied by the adjustment of initial policies, which in the case of the initially pro-owners bias involved mitigation in favour of the present users. Where the initial favourites were the present users, adjustments took the interests and voices of former owners into consideration.

What were the restitution policies in the Baltic countries and why was Lithuania’s position on the restitution policy continuum different to that of Estonia and Latvia? In answering these questions, I can draw on the research on Baltic restitutions in the excellent monograph by Pettai and Pettai (2015), who considered property restitution in the context of the broader problem of transition and retrospective justice. Bazyler et al. (2019: 123–131; 213–223; 225–239) provide an update and meticulous details about restitution legislation of all three countries along with a broader international context.

In all three Baltic countries, the early victory of the tokenist strategy of state independence restoration predetermined their commitment to property restitution, as claiming state continuity but denying continuing validity of rights would have involved a performative contradiction. Therefore, the basic framework for property restitution was worked out very early after the proclamation of independence restoration. In Estonia and Lithuania, this was done even before August 1991. Namely, basic property restitution legislation was accepted by Estonia’s parliament already on 19 December 1990, with the Lithuanian Seimas following suit on 18 June 1991 and 16 July 1991. Latvia’s Saeima did this on 30 October 1991 (Bazyler et al. 2019; Pettai and Pettai 2015: 201–213; Kein and Tali 1995; Nissinen 1999; Pakalniškis and Vaitkevičius 2013).

In all three countries, restitution started with the registration of the claims of former owners and their heirs. Initially, rather tight deadlines for accepting such claims had been established, aiming to collect all claims during 1 or 2 years. The hope was to complete reprivatisation before privatisation, in order to avoid situations when formerly nationalised property is sold for certificates to new owners. However, this turned out not to be possible. The deadlines for lodging claims were repeatedly extended, with restitution and privatisation advancing in parallel.

In Estonia, some 132,400 property objects were claimed, and most of these claims (97.7%) were satisfied. Most of these claims were about land, with 57.1% of Estonia’s total land area becoming involved in restitution. In addition, some 6000 apartment buildings and 25,000 apartments were returned, encompassing 2.6% of all dwelling stock. These changes in property produced approximately 75,000 forced tenants, who were protected by eviction limitation and rent controls, which remained in force until December 2004 (Pettai and Pettai 2015: 204–206).

Lithuanian restitution offices received 866,657 land property and around 3000 residential property restitution claims; 96.1% of land property claims were satisfied, with 62.3% of total land area becoming involved in restitution. Approximately 1200 residential buildings and 7150 apartments were returned to former owners or their heirs and 30,000 residents became forced tenants. However, this made up only 0.7% of the total dwelling stock. This is a very small figure in comparison with Latvia, where 22,152 residential properties were claimed and 15,138 (69.9%) of such claims were satisfied. In this way, 7.0% of dwelling stock (10,321 apartment buildings, 78,046 apartments) was affected by restitution, and 230,000 forced tenants were created (Pettai and Pettai 2015: 204–206). Unfortunately, Latvian privatisation or statistical offices did not produce summary data on land property restitution.

Differences in the scale of real estate restitution across the three Baltic countries reflect those in the level of urbanisation and overall modernisation across them as of 1940. Despite significant progress in urbanisation during the interwar period, in 1939 the urban population accounted for 32.8% of the total population in Estonia, 34.2% in Latvia and 19.1% in Lithuania—in 1938 (in 1939 Lithuania lost Klaipėda but regained Vilnius, making the share of the urban population surge to 23.1% by the end of that year) (Norkus and Markevičiūtė 2021: 627–636). However, all larger cities in Lithuania (except Kaunas) and Estonia suffered from bombing and military activity during World War II, while the largest city in the Eastern Baltics, Riga, mainly escaped both kinds of damage. Also importantly, by this time in the cities of Estonia and Latvia (except for Eastern Latvia), Estonians and Latvians already made up the majority of the population. In many Lithuanian cities and towns, Jews were still the largest ethnic group. They were nearly completely exterminated under German occupation.

Most survivors emigrated to Israel and the West, with a small Lithuanian Jewish minority mainly consisting of immigrants from other Soviet republics still existing in 1990. Meanwhile, original Lithuanian restitution legislation considered only actual citizens of Lithuania and permanent residents to be legitimate claimants. This excluded not only the surviving heirs of Jewish owners from the interwar period but also Lithuanian emigrants, who included most of the interwar Lithuanian urban elite. Later the requirement of permanent residence was dropped, but that of citizenship remained. This meant that most emigrants and heirs of Jewish owners remained excluded. Only in 2011, yielding to international pressure, did the Lithuanian government modify its restitution legislation, extending restitution to communal property of interwar Jewish religious and secular organisations (Bazyler et al. 2019: 226).

Rather differently, Estonian and Latvian legislation gave rights to reclaim property to emigrants who were citizens of these countries at the time of Soviet occupation in 1940, as well as to their heirs (Bazyler et al. 2019: 123–131, 213–223). They actively participated in restitution, making up a significant proportion of claimants to the restitution of property rights over real estate in Riga (Nissinen 1999: 105–109; Krastiņš and Krūmiņš 2017: 404–409). To protect present tenants, rents were regulated and eviction limitations were imposed, extending to 8 years in Latvia and 7 years in Estonia (Pettai and Pettai 2015: 204–206). Although in Lithuania the group of people affected by the restitution of dwellings was the smallest, it was backed by legislation which was the most generous. The 1991 restitution law provided a 10-year-long protection period against eviction. Even before this term had passed, a new law accepted in 1997 obliged owners who did not negotiate terms of withdrawal with their forced tenants to sign rental agreements with municipalities. They then sublet apartments to the existing tenants. The difference between the sum in rent paid by the tenant to the municipality and the rent paid by the municipality to the owner was then compensated by the central government from a special fund (Pettai and Pettai 2015: 204–206, 211–213).

However, the differences between Estonia and Latvia on the one side and Lithuania on the other are largest in the field of land property restitution. All three countries committed to the restitution of land property to former owners. In all of them, the main obstacle to the consequent implementation of this policy was the abortive Soviet agrarian reform, which began in 1989, allowing the establishment of individual family farms (with a maximum area of 50 ha) on collective farm land. Within around 2 years, a significant number of such farms were established in all three republics. In Lithuania, by the autumn of 1991 when the founding of further farms according this law was stopped, there were already 5139 family farms, established according to this law, with a total area of 86,387 ha and 16.8 ha in mean area (Treinys 2008: 65). In Latvia, by 1 November 1990 there were 7296 such farms, using 151,888 ha of land (20.81 ha mean area) (Boruks 2003 (1995): 609). Among all the republic laws on the establishment of family farms, Estonian law (accepted on 6 December 1989) was unique in providing priority rights to former land owners, partly pre-empting the contradictions between this law and later legislation on the encompassing land restitution.

However, even in Estonia, newly established family farms were rarely located on land that farmers were entitled to reclaim according to restitution legislation as former owners or legitimate heirs. Thus, this late Soviet reform foreordained the interests that clash between the present land users and former owners. The former were bona fide capitalist farmers, as the opportunity to establish family farms was an attractive proposal largely to the most entrepreneurial collective farm members. In comparison with those farmers who were forced to start individual farming due to the dissolution of collective farms in 1992–1993, they also had better starting conditions, as in 1989–1991 the founders of new farms usually received credits which they did not need to repay because of the hyperinflation outbreak in 1991, and many of them could buy tractors and agricultural equipment at state-subsidised prices. Clearly, there was sore picture of conflict brewing between pioneering private agricultural entrepreneurs and the holders of historical property rights.

In Lithuania, there was an additional complication because of the law of the Lithuanian Supreme Council accepted in July 1990, which obliged the administration of collective and state farms to award their workers with 3 ha individual plots for each family. By this time, collective and state farm members were already entitled to use 0.6 ha individual plots, while the actual size of possessions was usually much larger but depended on the ‘good will’ of the administration. With this law, the leaders of the restored independent Lithuania still under Moscow’s grip calculated a way of winning broader support from the rural population and of undermining the power of the collective and state farm administrations. They were perceived as the main supporters of the competing national communist party, which in its turn was suspected of acting as Moscow’s ‘fifth column’ (Norkus 2012b; Treinys 2008).

When land restitution did start the following summer, it was politically disadvantageous to take this land back only a year after having just granting it. Meanwhile, the 1990 July law decreased the total area of the land fund available for restitution and created another conflict between former owners and present users who had a stake in making their former individual plots a permanent possession. No similar law was accepted in Estonia and Latvia, where restitution policy was decidedly (in comparison with Lithuania) in much greater favour of the interests of former land owners and their heirs.

Due to land property restitution, by the end of the first post-communist decade, small farms were the dominant type of economic unit in the agricultural sector, as they had been in 1940. This outcome was expected and congratulated in 1988–1991 by fundamentalist tokenists in the Baltic countries, who idealised the rural societies of the Baltic countries, perceiving family farms as strongholds of traditional cultural values (Alanen 2004; Alanen et al. 2001). The only difference was that the mean size of family farms emerging out of the dissolving collective farms was smaller than that in 1940, despite lower levels of employment in agriculture (Norkus 2012b, 2014: 339–396).

One reason was that in many cases, ownership of land was divided between different heirs during restitution. Another was that many new farmers were employed in collective farms far away from the places where their restituted lands were located. With no capital to re-establish family farms at their native places, they had to survive from the output of their individual plots, which they now had to rent from their owners or their heirs (except for Lithuania, where these plots could be privatised). Over the course of time, larger farms also appeared, conglomerating plots of land rented from many small landlords. Most were absentee landlords, living in cities, with the rental income from their inherited possessions playing only a minuscule role (Norkus 2014: 378–379).

Some larger agricultural firms did survive but only in Lithuania. These were partnerships established as successors of former collective farms and were usually headed by their former directors. As a matter of principle, in all three countries the former workers of collective farms were allowed to establish such companies after restoring their land property rights and receiving their share of the collective farm assets, partitioned according to how many years they had worked at the collective farm. This option appealed to older members of collective farms with no heirs to work on the reclaimed lands. However, in Estonia and Latvia, nearly all such partnerships went bankrupt because of the consistently neoliberal economic policies of the governments in these countries, opening their markets to imported agricultural production (usually subsidised) from EU countries (Krūmiņš 2007: 259–263; Krastiņš and Krūmiņš 2017; Holt-Jensen and Raagmaa 2010).

In Lithuania, some were able to survive due to changing governments, when the first parliamentary election after the restoration of independence on 25 October 1992 was won by the successor party to the Lithuanian National Communist Party, which governed Lithuania in 1992–1996. As in issues related to the restoration of urban properties, in their agrarian policies, the ex-communists promoted the interests of the present land users against those of historical owners and their heirs. While the reforms implemented by the LRM government in 1990–1992 were not reversed, establishing path dependence for further reforms, the ex-communists did make policy corrections to help larger agricultural firms survive.

Besides protective tariffs on agricultural imports, which benefited individual farmers as well, they imposed further restrictions on the restitution of property rights, favouring actual land users. Firstly, these rights were not restituted to the heirs of former owners who neither intended nor had the necessary competence to farm the restituted land themselves. Secondly, land was not restored if it was of vital importance for the economic activity of joint stock companies (e.g. being the location of their production facilities) (Aleknavičius 2008; Poviliūnas 2008; Treinys 2008).

After the election debacle in the autumn of 1992, the core of the Reform Movement of Lithuania (Lietuvos Persitvarkymo Sąjūdis) was transformed into the greatest and most influential Lithuanian rightist party (Lithuanian Conservatives/Homeland Union), who won in the next election in 1996. The Conservatives attempted to correct these perceived ‘distortions’ in the land restitution process. A new law on restitution was accepted in 1997, strongly prioritising the interests of former owners and their heirs (Bazyler 1997: 230; Pettai and Pettai 2015: 208–209). Restrictions on the restitution of land economically used by partnerships were removed, exposing them to extortionist rent demands because such companies did not receive permission to buy land and no rent ceilings were introduced. The problem of a shortage of land available for restitution due to the privatisation of former individual plots of land and lands used by farms newly established in 1989–1991 was resolved, allowing former owners and their heirs to receive compensation in kind as plots of land of the same area in other locations in Lithuania (Norkus 2014: 371–372).

Thus, in Lithuania the political comeback of the ex-communists caused the pendulum to swing from favouring the interests of former owners to securing the advantage to present users, giving all land reform efforts a typist touch. So long as the fundamentalist tokenist forces remained in government during the complete restoration market reform period in Estonia and Latvia, there were no comparable pendulum swings during restitutional land reform in these countries. A basic framework for land reforms was established by the Law on Land Reform in Estonia accepted on 17 October 1991. Prudently, acceptance of legislation on the dismantling of collective and state farms (partitioning of their assets between former workers) was postponed until the land claims of former owners could be collected (Maide 1995; Alanen et al. 2001).

In Latvia, major change was brought about by the reintroduction of the Civil Code of 1937 in 1992, which allowed inheritances to be partitioned among a larger number of heirs (Krastiņš and Krūmiņš 2017: 422). This complicated the situation of many former members of collective and state farms, who considered re-establishing farms on restituted family lands. The assumption guiding the Estonian and Latvian approach to resolution of the conflicts of interest between owners and present users was that such conflicts should be regulated privately, by home owners buying the land out, or vice versa. In many situations, this kind of solution was difficult to implement in practice, involving protracted and costly litigation (Grūtups and Krastiņš 1995; Krastiņš and Krūmiņš 2017: 404–409).

The restitution of land ownership rights was a major factor driving the restoration of agricultural capitalism in all three Baltic countries. Therefore, the system of economic relations that emerged out of the restorational agricultural reforms of the early 1990s rather closely resembled the pre-1940 arrangements and was related to the prewar system via personal continuity. While most farmers who did farm their farms in 1940 or in 1949 were simply too old by 1992 to resume farming on their restituted farm possessions, this was done by their sons or other close relatives. However, any similarity between pre-1940 Baltic agrarian capitalism and its restored version increasingly attenuated during the first two decades of the twenty-first century, when EU ascension made the Baltic countries attractive to large agrobusiness conglomerates operating cross-nationally. They started to buy up land, concentrating into large landholdings, industrialising agricultural production (Holt-Jensen and Raagmaa 2010: 132–133; Poviliūnas 2008: 337–338).

However, the rise of large-scale industrial agricultural production after 2000 only took place in relatively few areas (mainly in Lithuania and Latvia) with the most fertile soils and advantageous locations. This was one of the factors contributing to the increasing cross-regional differentiation in terms of intensity of land use for meeting agricultural production aims. While in the interwar Baltic states (as well as in the Soviet years), this was the main purpose attributed to land in all regions, in the restored Baltic states, there is ongoing differentiation into areas of intensive agricultural production and those where subsistence farming prevails, along with the recreational residences of the urban population (Blacksell and Born 2002; Holt-Jensen and Raagmaa 2010).

There is no reason whatsoever to deplore these developments. The demise of large industrial agricultural production and its subsequent territorial reorganisation, concentrating it in the regions of top productivity and minimising the imprint of human productive activities to levels characteristic for protected areas, is a highly ecologically progressive development, contributing to reducing climate change. One of the leitmotifs of green movements, which were extremely influential during Gorbachev’s perestroika years, was criticism of collective industrial farming for its extremely heavy environmental imprint. The green movement rapidly declined in the early 1990s, when the collapse of Soviet large industry and industrial agriculture surpassed the greens’ demands. Tellingly, all three Baltic countries are highly rated in international indices measuring the condition of the natural environment. In 2012, Latvia even scored second (next to Switzerland) in the Environmental Performance Index (EPI), regularly published by the Yale and Columbia universities at the World Economic Forum.Footnote 1

The role of property rights restitution was much less important in the capitalist transformation of the industrial and services sectors. On 31 March 1992, the Latvian Supreme Council accepted a resolution ‘On the acceptance of requests from owners (physical persons) of nationalised and other unlawfully expropriated real estate (enterprises and other ownership objects)’. Requests were accepted for 3 months. On 30 March 1993, the law ‘On restitution of the property rights for enterprises and other property objects’ was accepted (Krastiņš and Krūmiņš 2017: 409). The potential beneficiaries of this legislation were the owners of 49,000 industry and services enterprises that had been nationalised in 1940 (Krastiņš and Krūmiņš 2017: 408).

As many of them were joint stock companies with many owners, the Law of 30 March 1993 stipulated that instead of restitution in kind, former stock owners should be compensated with stock options or certificates allowing them to participate in the privatisation of other public enterprises. In fact, this was the most usual method of compensation for former owners or their heirs because there were very few willing to run the enterprises after their repossession. One famous case is the publishing house Valters und Rapa, founded in 1912, which also owned a network of bookstores in interwar Latvia (Krastiņš and Krūmiņš 2017: 409). It resumed its activities under the ownership of the heirs of the owners of its stock capital from the interwar years. However, such cases are more commonly an exception. Many Latvian industry enterprises that were available for privatisation in 1993 had been founded before 1914. However, there were comparatively few claimants for reprivatisation or ownership rights compensation according to the Law of 30 March 1993—only 1108 requests were presented in early 1990 (Krastiņš and Krūmiņš 2017: 409).

The situation was not much different in Estonia—there were few legitimate claimants to reprivatise industrial property (Kein and Tali 1995; Terk 2000). In both countries, the reasons lie in the peculiarities of the ethnic division of labour that existed before the externally imposed socialist revolution. In interwar Estonia, many owners in industry, banking and other services belonged to the German minority. Most of its members repatriated in 1939 before the Soviet occupation, the remainder doing this in 1940–1941. Their property was taken over by the Estonian state, with compensation promised (but not paid due to subsequent political changes) in an agreement between the Estonian and German governments. This liability was inherited by the Soviet occupiers, who also had too short a time to deliver. After 1991, the German government did not pressure the government of restored independent Estonia to pay the surviving members of the German minority or their heirs what the last government of independent Estonia had promised them in 1939.

The situation and fate of the German minority in Latvia was similar (Bleiere et al. 2014: 213–216). However, besides Germans, in Latvia there was another ethnic minority over-represented among the owners of industry and services (trade, transport) enterprises: Jews. Their property was nationalised by the Soviets, while they themselves were exterminated by the Germans and their local assistants, with few not-too-distant heirs surviving until 1990–1991 to advance their property restitution claims (Bazyler et al. 2019: 2013–215). In Lithuania, where Jews dominated among private owners in industry and services, Lithuanian legislation excluded them from restitution because very few of their surviving heirs lived in Lithuania in 1990, and citizenship and residence was mandatory for restitution.

Also importantly, in all the Baltic countries, authoritarian nationalist governments in the late 1930s perceived the over-representation of minorities in business and the absence of a strong national capitalist class as a social and political problem. In Latvia, Ulmanis perceived this as a problem, along with the strong presence of foreign capital as well (Stranga 2017: 85–90). To solve these problems, the Estonian and Latvian states expanded the state sector investing in new industrial projects and nationalising (this was most characteristic for Latvia) ‘strategic’ industrial objects by paying their foreign and domestic owners compensation (Aizsilnieks 1968: 652–658; Kõll and Valge 1998). Further plans could include their privatisation by selling at preferential prices to ‘deserving’ members of the national elite (Stranga 2017: 9).

However, the occupation in 1940 prevented them from realising these plans, while the bloated state sectors just made it easier for Soviet puppet governments to accomplish the encompassing nationalisation of industry and services (Žagars 1978). The industrial policies of the Lithuanian government were very similar, except that it promoted industrialisation by providing credits and tax exemptions for Lithuanian cooperative unions, thus helping them to outcompete private capital owned by Jewish minority (Vaskela 2014: 139–187).

The extinction of German and Jewish minorities greatly decreased the number of potential claimants for restitution of their ownership rights. The effect of prewar state-led industrialisation and prewar nationalisation was the same. Therefore, differently from the restoration of capitalism in the agricultural sector, restitution of property rights did not play a noticeable role in the restoration of capitalism in industry. Differently from the restored class of family farmers in 1990, the new urban capitalist class in the Baltic countries showed only very tenuous continuity with the capitalist class of the interwar years. The reason was that most assets up for privatisation in the industrial and service sectors in the Baltic countries were newly created from state investments during the socialist period.

After clearing restitution issues (denationalisation or reprivatisation), the remaining part of public property could be privatised using these four methods: (1) sale to outsiders, (2) management buyouts, (3) employee buyouts and (4) massive use of privatisation securities (voucher privatisation) (Mickiewicz 2010 (2005): 162–167). Among these methods, the fourth method was preferentially used in Lithuania in 1991–1992. ‘It is somewhat unfair that countries such as the Czech Republic and Russia have been highlighted in the analysis of the international experience of voucher privatization, while the massive voucher privatization in Lithuania has been viewed for some reason as being less interesting or worthy of analysis’ (Terk and Reid 2011: 32).

After the comeback of the ex-communists (former national communists) in the autumn of 1992, this policy was supplemented by the second method, as employees received preferential rights to buy the assets of their enterprises. As a result, property rights remained dispersed, with no main owner able to supervise enterprise administration. In most cases, the managers used this situation for asset-stripping, leading to the decline and collapse of most privatised enterprises and property losses experienced by their new owners, who also lost their jobs. In some cases, top management was able to privatise the enterprises under their administration (Pakalniškis and Vaitkevičius 2013).

More than 75% of large industrial and transport enterprises in Lithuania had already been privatised by the end 1994 (Terk and Reid 2011: 32). This is the year when privatisation of large enterprises really got underway in Estonia and Latvia. An important cause for the delay was the larger size of urban real estate and land property, as well as industrial objects, which were potential objects of restitution claims. To recall, differently from Lithuania, the Estonian and Latvian governments did not use the shortcut of excluding former citizens of Latvia, who did not preserve or did not restore their original citizenship and did not return home after restoration of independence of their original homelands. In fact, emigrants or their heirs could not easily restore their citizenship, as this was not permitted in the citizenship legislation of their new homelands, while all three restored independent Baltic states only grudgingly allowed dual citizenship, fearing that its introduction could be used by the citizens of Russia. Therefore, the collection and processing of restitution claims took a much longer time, using more administrative resources than in the case of Lithuania.

In Estonia and Latvia, there was a protracted debate on the best method for the privatisation of property remaining after restitution. In Estonia, advocates of ‘economic’ privatisation (sale to outsiders paying ‘real’ money) clashed with the supporters of ‘political’ privatisation following the Lithuanian model (selling out state property for vouchers) (Kein and Tali 1995). The Latvian government favoured the latter method. However, its application was delayed because of disagreements over whether privatisation should be organised by a single government body or whether it should be entrusted to different ministries in control of the objects of privatisation (Nissinen 1999: 79–95; Krastiņš and Krūmiņš 2017: 431–438). In 1993 Estonia established the Estonian Privatisation Agency (EPA) after the example of the Treuhand agency in Germany, which privatised the property of the former East German state (Terk 2000). Latvia followed this example the following year. However, voucher privatisation was dominant in Latvia, while in Estonia sale to outsiders became the main method, selling large industry and infrastructure objects at public auctions and by direct sale to strategic investors (Terk and Reid 2011).

Using this method, Estonia was more successful in attracting foreign capital. As a result, foreign direct investments (FDI) in 1993–1995 in Estonia were US$ 579 million, with US$ 439 million in Latvia and only US$ 134 million in Lithuania. If one takes FDI per capita, the difference is even more impressive: during these 3 years, Estonia accumulated 366, Latvia 143 and Lithuania only US$ 42 per capita (Aslund 2002: 435–436). Besides introducing capital and new technologies, a higher level of foreign ownership facilitated access to foreign markets. This was probably the most important factor for Estonia’s early economic success. Among the three Baltic countries, restorational contraction of the economy was least pronounced in Estonia and was followed by strong recovery growth (since 1995) from a higher starting point.

The Estonian and Latvian capitalist economies of the late 1930s can be described as state corporatist capitalism due to the strong position of the state sector and the attempted introduction of the corporatist system by both Ulmanis and Päts, following the example of Mussolini’s Italy (Bleiere et al. 2014: 175–176; Kõll and Valge 1998: 46–94). The Lithuanian variety of capitalism can be described as being of the state cooperativist variety because of the paramount role of cooperative unions in the organisation of economic life (Norkus 2014: 205–226, 259–276). On final count, all these varieties can also be characterised as subvarieties of an agrarian coordinated capitalist market economy (Plakans 2011: 334–335; Hall and Soskice 2001; Norkus 2012a).

The variety of capitalism that emerged out of the rubble of the Soviet centrally administrated economy is variously described in research literature (Bohle and Greskovits 2012; Drahokoupil 2008; Myant and Drahokoupil 2011; Norkus 2012a; Woolfson and Sommers 2014) as the neoliberal Baltic model or neoliberal (Friedmanian) capitalism. These are the distinguishing features of the Baltic neo-liberal (Friedmanian) capitalism (Norkus 2012a: 242–269):

  1. 1.

    The maintenance of macroeconomic stability as the uppermost goal of economic policy, with no active independent monetary policy (money supply management) by a central bank

  2. 2.

    The dominance of foreign banks in commercial banking

  3. 3.

    Foreign investment-driven growth

  4. 4.

    No active industrial policy

  5. 5.

    Flat tax rates

  6. 6.

    Marginal role of social inclusion and equality considerations

  7. 7.

    Low levels of collective bargaining coverageFootnote 2

Differences between the interwar and post-communist models are related to structural changes in the economies of the Baltic countries during the period of Soviet occupation. By the end of the interwar period, the absolute majorities of the economically active population in the Baltic countries were still employed in agriculture, which also contributed the largest share to total output. By the end of the Soviet period, they were thoroughly urbanised industrial countries. Agriculture already played a minor role in both respects.

Therefore, restoration of family farms as the dominant type of economic unit in agriculture was not sufficient for restoration of the same variety of capitalism that existed in the Baltic countries as of 1940. It would also be out of date in the changed international environment, marked by globalisation and related neoliberal economic policies. However, rigorous application of restitution policies (especially in Estonia and Latvia, where they were part of the policy package of the triumphant tokenist fundamentalism) created continuity between post-Soviet and interwar economic institutions, which is just as substantial as that between the interwar and restored state institutions.