On June 11 the Lithuanian Free Market Institute and the Lithuanian Development Agency held an international conference “Lithuania in the World: Competitive or Outcompeted?” The organisers addressed the issue of the Lithuanian competitiveness not only from the point of view of government or stakeholders but also from a global and detached perspective. Apart from government officials and business leaders, a significant part of the conference was taken up by independent analysts and think-tanks. Participants of the event debated about the fruits of the Lisbon Strategy, Lithuania’s rankings in various indexes, competitiveness centres in other countries and other topics. The conference was supported by Lithuanian companies Mažeikių Nafta and Koncernas SBA.
How does Lithuania compare to other countries?
According to specialists of the conference, today Lithuania is middling as compared to other countries of the world. Its strongest areas of the economy are GDP growth, the number of mobile phones and Internet users, while the weakest ones are laws on immigration, an inconsistent public policy, slow adjustment of public policy changes in the business, brain drain, a failure to attract foreign specialists to the country, workers’ morbidity affecting companies’ activity and corruption.
As John Andrew, Deputy Director for Central and Eastern Europe at the Economist Intelligence Unit told at the conference, Lithuania lags behind the majority of the new EU member states in terms of competitiveness, but the gap is not very wide. He concluded that Lithuania’s economic situation is not the worst one, but it is not at a high level according to economic indicators: in a general index of economic indicators, Lithuania ranks 36th in the world, while Estonia is in the 23rd position.
According to Mr. Andrew, Lithuania’s advantage is a good financial system, while the shortcomings are a lack of the labour force and a complex tax system. For the time being, the country’s strongest point remains the capacity to produce export goods more cheaply than other countries, but this advantage will end sooner or later, therefore the country should be concerned about introducing high technologies, he believes. J. Andrew pointed out at the conference that at present Lithuania can compete in relatively low prices, but this will not last long since earnings are rising at a fast pace. He also noted that productivity in Lithuania, albeit rising rapidly, remained still rather low.
Suzanne Rosselet-McCauley, Deputy Director of IMD’s World
Competitiveness Centre, stated at the conference that the Lithuanian economy might grow at an even faster rate. “Lithuania looks fairly well on the global economic arena, but the main obstacles to a more rapid development are a high level of corruption, bureaucracy and the incompetence of state institutions,” – she affirmed.
“Lithuania has 152 institutions controlling business activity. We barely rank 124th in terms of the flexibility of labour market regulation which is a vital condition in nowadays’ dynamic economy. The bulk of amendments, passed or proposed, inhibits, rather than facilitates, companies’ abilities to create value added,” – contented Remigijus Šimašius, President of the Lithuanian Free Market Institute.
Laura Guobužaitė, Deputy Director General at the Lithuanian Development Agency, agreed with Mr. Šimašius. According to her, Lithuania ranks 36th among 55 countries in the IMD World Competitiveness Yearbook, down by five positions compared to 2007.
Policy analysts gathered at the conference defined urgent moves that Lithuania must embark on seeking to be competitive. The country needs to reform the most problematic areas: labour market regulation, the tax policy and the public administration system.
“Lithuania is still competitive, but is likely to be outcompeted,” – said LFMI’s President at the conference. According to him, the latest data shows that if the country does not take action to overhaul its tax and social security funding systems, it might be paradoxically labelled “a country of a low-earning, but a costly labour force.”
Given the current economic situation, policy analysts are also concerned about Lithuanian politicians’ talks about abolishing proportional personal income taxation and increasing the profit tax. Mr. Šimašius was convinced that the country’s authorities must undertake opposite measures. “The Lithuanian Government might initiate measures that in the mid-term, at the least, would allow talking not about a “hard” or a “soft” landing, but about the economy’s moving ahead,”- he proposed at the event.
As economist Daniel Mitchell, Senior Fellow at the Cato Institute, told at the conference, if Lithuania retains a flat-rate proportional tax system, it will send investors a positive signal. “A flat tax rate is considered to be a good thing, and you are one of the 25 countries that apply such a tax rate,”- said Mr. Mitchell.