BUILDING A LONG-TERM RECORD OF INFLUENTIAL FREE-MARKET REFORM IN LITHUANIA
When Elena Leontjeva was an eleven year-old girl in Vilnius, then a part of the Soviet Union, she saw a discarded gum wrapper for the first time. She had never tasted chewing gum, but as she pressed her nose to the sweet-smelling paper she could imagine what it might be like.
She had a similar experience years later, as a graduate student in 1990, the year that the independent Lithuania was reborn. Suddenly, freedom of speech and movement opened a new world of possibilities — but she could still only imagine what a market economy might be like, for it too was something beyond the realm of her own experience.
That year, Leontjeva joined the front lines of the battle of ideas, working with a team of young economists led by her professor, Kestutis Glaveckas, to establish the Lithuanian Free Market Institute (LFMI). With 25 years of hindsight, we can see how the post-communist experience for Lithuania has been more successful than most. Recently, Lithuania’s per-capita GDP has surpassed three quarters of the European Union average, and the country holds the 20th position out of 189 evaluated countries according to the World Bank’s “Ease of Doing Business 2015” index and 15th globally in the Heritage Foundation’s 2015 “Index of Economic Freedom.” We can also see the pivotal role that LFMI has played in this this tremendous growth, and the way it built up institutional strengths that have it poised for long-term influence.
“There was no doubt in our minds that it was time to contribute to building a new order; one based on individual liberty and limited government,” Leontjeva wrote in Freedom Champions: Stories from the Front Lines in the War of Ideas. “Many scholars and professionals joined us, excited by the idea of building a new Lithuania. I dropped out of postgraduate studies without regret and ventured into the newly established institute. We were privileged with only a month or two of academic serenity to sketch out the free-market principles before life provided a chance for us to jump into the reform-making process.”
The road to implementing practical market reform was never easy, with continual opposition from Lithuania’s central bank, scant organizational resources, an almost entirely volunteer staff, and LFMI’s stalwart opposition to accepting government funds. Still, LFMI met with early and repeated success. The organization’s proposal on banking principles and the role of capital allocation in markets won over the parliament’s economic committee. It also developed the legal principles and framework that led to the nation’s first commodities market, capital market, and stock exchange — the first of its kind in all the former nations of the Soviet Union.
Its work also brought about Lithuania’s currency board, eliminating an extraordinary amount of discretionary power from the nation’s central bankers and tied currency issuance to foreign reserve exchanges and vault-held gold. Currency expansions, devaluation, and other arbitrary interventions became nearly impossible.
“In our work to develop a system of institutions, our aim was to provide the impetus for the adoption of a minimum set of rules to protect private property, rather than giving way to interventionist regulations,” Leontjeva wrote. “Reflecting back on those times, I regret that we were not able to address all of the pressing issues of the day, yet I know that we always chose the most important ones that would result in a chain reaction.”
Since those early foundational days, LFMI has turned its formidable analytical power to an array of important topics, including privatization of social insurance and pensions, sunset laws, deregulation, eliminating barriers to market entry, school choice and competition, private-sector health care and insurance, public-sector corruption, infrastructure, energy, the effects of shadow economies throughout the Baltic region, and much more. Despite several changes in leadership over the years, the institution has held strong, retaining its bedrock mission of fostering liberty and free markets.
In recent years, LFMI has created new tools that bring information about government intervention and economic reasoning into the hands of people who need it the most — ordinary Lithuanian citizens. It launched a tax calculator in 2014 that familiarizes Lithuanian taxpayers with the amount they truly pay in taxes, clearly showing how the government spends their money. This became a model for a similar calculator launched the following year in Poland by Civil Development Forum (FOR). Think tanks in both Kyrgyzstan and Bosnia and Herzegovina are working to develop analogous tax calculators for their countries. LFMI also published a new economics textbook for Lithuanian students in 2015, Economics in 31 Hours, which “is aimed at establishing solid foundations of economic knowledge and enhancing pupils’ abilities to perceive and evaluate social realities critically.” It accompanied that with an innovative new online teaching platform for economics teachers to use as a supplementary resource in their classrooms and lesson preparation.
The Lithuanian Free Market Institute launched a tax calculator named “Mocu Mokescius” (“I Pay the Taxes”), that familiarizes Lithuanian taxpayers with the amount they truly pay in taxes and to see clearly how the government spends their money.
Perhaps the most notable of these useful tools is LFMI’s Municipal Performance Index, which builds the case for policy change at the local government level. When people are free to vote with their feet, moving from one city to another in pursuit of lower taxes, a more favorable regulatory climate, and greater economic opportunity, municipal governments have to respond with better policy. In order to make informed choices about where to live, though, people need quality information. The LFMI index provides its rankings in three overarching categories: municipalities for citizens, municipalities for investors, and municipal governance and administration. It has had such a phenomenal impact that it was awarded the prestigious $100,000 Templeton Freedom Award during Atlas Network’s 2014 annual Liberty Forum & Freedom Dinner.
Žilvinas Šilėnas of the Lithuanian Free Market Institute with Jennifer Templeton Simpson and the finalists for the 2014 Templeton Freedom Award.
“The performance index is an easy self-evaluation tool for municipalities,” LFMI President Žilvinas Šilėnas said. “As a byproduct of the index, we have been able to go to various cities and meet mayors, local entrepreneurs, and citizens to discuss issues and solutions related to their schools, taxes, or debts. So we not only present our self-evaluation tool, we actually help them to be clearly heard.”
First launched in 2011, and most recently updated with the latest annual information for 2015, the index comprises 65 indicators and anchors its evaluation criteria in the underlying values of freedom of choice, private ownership and initiative, free enterprise, efficient use of public resources, and transparent and accountable governance.
LFMI carried out exhaustive research to develop and compile the municipality index, and used it as a basis to frame a plan for needed policy change. Thus, alongside the municipality rankings, the index yielded a solid, evidence-based framework and benchmark for municipal policy reform that gave a new credibility to free market approaches, including consumer choice, private service delivery, tax cuts, reduction of government regulations and bureaucracy, privatization of municipal assets, and balanced budgets.
Since the launch of the index, LFMI has met with the municipal authorities of all major Lithuanian cities — Vilnius, Kaunas, Klaipeda, Siauliai, Panevezys — and visited numerous smaller cities. During such visits, LFMI met with local authorities, citizens, students, businesses, and the media.
“All these meetings helped to build up relationships both with authorities and local people,” Šilėnas said.
The 2015 edition of the Municipal Performance Index, the organization’s fifth annual edition, generated 100 media hits on the day of its launch, and another 100 over the next three days LFMI reported. This year, the capital city of Vilnius topped the ranking for the first time, taking the top spot from Klaipeda because it has created a better climate for business and outside investment, along with a low unemployment rate and increased population. Still, Vilnius is saddled with high public debt that could dampen its future prospects, Šilėnas pointed out. The Kaunas and Klaipėda regional municipalities outperformed the remaining 54 regional local administrations.
“This year’s index has revealed some positive aspects in the work of local administrations,” an LFMI release explains. “For one thing, the amount of people who have received entitlement benefits has lowered by a quarter. The 2015 index has also recorded an 8 percent increase in the number of economic entities per 1,000 people and a 1.3 percent increase in the number of construction permits per 1,000 citizens. Importantly, municipalities have also reported a 13 percent growth in the number of people who have obtained business licenses.”
LFMI president Žilvinas Šilėnas meeting the mayor of Taurage municipality in Lithuania.
The best think tank projects deserve to be replicated around the world, and LFMI is eager to share the methodology and mechanics of its index with other free-market think tanks, and explain how to adapt its evaluation metrics for the municipalities in other nations. LFMI is now assisting New Economic School Georgia in developing its own municipality index. Several other think tanks across the globe, including in Albania, Kenya, Egypt, Croatia, and the Philippines, are exploring the possibilities of launching a similar tool for their countries.
A guidebook for replicating the index is in the works, and LFMI hosted an in-depth webinar briefing in early 2015 to explain how it is reshaping the public policy landscape in Lithuania, and to show other think tanks how they can also create an environment that attracts investment and prosperity by setting benchmarks for measuring municipal freedom and effectiveness. In his introduction to the webinar, Atlas Network CEO Brad Lips shared a quote from the granddaughter of Sir John Templeton, Jennifer Templeton Simpson, from her presentation of LFMI’s Templeton Freedom Award.
“My grandfather, like many other philanthropists, was concerned about the impacts of poverty,” Simpson said. “But he found that, most often, philanthropic organizations were focusing on symptoms of current poverty, and not enough time was being spent on preventing future poverty. You prevent future poverty by creating a climate of economic opportunity, so individuals have the freedom to use their talents to create wealth, to satisfy customers, and help employees. I know this is what Atlas and its partners are working towards, and the Templeton Freedom Award is a wonderful celebration of these values that were so dear to my grandfather.”
Creating that climate of economic opportunity requires holding government accountable and limiting its power at every level, and citizens can use the index to have the greatest impact at the local level, or use it to seek better conditions elsewhere. City officials can use it to determine how they stack up in comparison to their municipal neighbors.
“In all the countries, the municipalities are more or less forgotten,” Šilėnas said. “We as think tanks always want to influence the prime ministers and the presidents, while that sector of local governments are ignored. I believe there is a niche market for that.”
