February 13, 2020 Print

Cutting the size of government in Lithuania is at the core of an ongoing long-term project undertaken by the Lithuanian Free Market Institute (LFMI), Atlas Network’s sole partner in the Baltic nation. Working with a coalition of stakeholders who share an interest in advancing legal safeguards against government ownership, the LFMI team used research and media to develop a legislative proposal that requires a mandatory assessment of all government-owned enterprises. As a result of their efforts, LFMI hopes that a bill that will lead to the privatization of nearly 270 state-owned enterprises will pass the Seimas, Lithuania’s unicameral parliament.

LFMI’s advocacy of a competitive assessment procedure for new municipal enterprises in Lithuania has fueled media and public policy debates about a pervasive lack of transparency and accountability in municipal enterprises—and the roots of the problem are deep. Existing laws mandate that municipal enterprises may conduct commercial operations to meet the needs of local communities and satisfy insufficient market supply, but are prohibited from creating privileges or discriminating against private businesses. Examples of government-owned enterprises include waste management, transportation, street maintenance, electrical utilities, and even bookstores—all businesses that could be handled by the private sector.  LFMI’s research shows that a grandfather clause that protects municipal enterprises already in operation has resulted in closed door procurement procedures, misuse of public finances, widespread corruption, and restricted consumer choice. 

Aneta Vainė, LFMI’s vice-president, said, “In Lithuania, just like in other countries in the region, we are seeing backsliding towards a progressive agenda which embraces bigger government as a force for administering social good.” 

Until LFMI stepped forward, a mandatory assessment of compliance with parameters related to government ownership, efficiency, transparency and accountability of existing municipal enterprises was unheard of in Lithuania. Through dedicated research reports, roundtable discussions, and public information events, LFMI’s efforts have blocked new proposals that would expand municipal enterprises and has been able to reach an influential audience with an agenda that emphasizes market options and creates greater opportunity for the private sector. Agnė Bilotaitė, a member of the Seimas, said, “It is obvious that municipal governments vastly abuse its right to conclude closed door transactions. In many cases they do not even bother to clearly define in procurement documents what they are buying so they can easily change the content and eliminate other providers. LFMI’s report In-House Transactions in Municipalities: A Threat to Competition confirms this.”

LFMI’s needs assessment methodology on the viability of municipal enterprises was adopted by the Governance Coordination Centre (GCC), an official government institution responsible for the monitoring of state and municipal enterprises. LFMI has also leveraged its work to block other legislative proposals designed to expand state-owned enterprises in industries such as state-owned pharmacies, alcoholic beverage stores, and banks. 

In the last three years, Vainė says that LFMI’s work has been extensively covered in local media, with at least 230 citations that have called attention to their research. “The vague concept of public interest is being vastly misused as a free pass to restore and expand government participation in the economy,” said Vainė. “Thanks to Atlas Network’s support, over the past three years we conducted an extensive research and advocacy program that allowed us to raise public and policy debates to a new level. We built a comprehensive body of arguments and mobilized major stakeholders to advance legal safeguards against government ownership in business. At the same time we had to take steps to prevent repeated attempts to eliminate the law that put in place restrictions on incorporating new municipal entities.”

If the law is adopted, the requirement for a mandatory review of municipal ownership in business is expected to result in the reduction in the number of government-owned enterprises by 15 percent within the first two years of implementing the reform and another 15 percent within the following three years, reducing government spending, inefficiency, corruption, and cronyism, and improving access to and quality of service provision to Lithuanians.