The eighth administration has announced a two-year progress report. It highlights promised and accomplished tasks as well as unpromised and accomplished ones. The impressive 200-page volume was a nice gesture to mark the halfway point in office. People say a good start is half the battle. But is this half the battle a good start?
The authors of the report offer myriads of figures to verify that the start has been good. The cabinet takes pride, for example, in that GDP growth in 1997 reached 6.1 percent instead of the planned 5 percent. That inflation was almost twice lower, 8.4 percent, than projected. That wages and salaries grew 10 percent faster than expected.
The government puts a full stop after these figures. We put a question mark. Over 16 percent of the prices used by the Department of Statistics to calculate the consumer price index (inflation) are regulated prices. Many goods and services continue to be furnished by the public sector, where pricing does not depend on market laws. Some prices are fixed even for the private sector. Given that, the official rate of inflation reflects neither the level of market prices nor changes in prices. So the impressively low level of inflation shouldn’t make one happy.
The growth of GDP should also be viewed with some reservations. When GDP is calculated, state institutions are regarded not as agencies living off redistribution but as activities creating real wealth. This makes it possible to bolster paper indicators of GDP, augmenting at the same time taxes and redistribution. So the presented GDP indicators pose a question as to how and thanks to what they rose. If GDP growth is effected by an expanding public sector, there is really nothing to boast about. From 1996 through 1998 the state budget increased by 40 percent, while the growth of GDP reached hardly 10 percent during this period.
Finally, even if we take into account all these reservations and concede that the figures truthfully reflect ongoing processes, the achievements in question can hardly be ascribed to the government. The government has nothing to do with economic growth. The public sector does not create any value but redistributes money collected in taxes. The only way in which the government contributes to economic growth is by allowing the private sector to operate. However, taking pride in this would be cynical. Growing wages are not the merit of the government either, of course unless they are paid from the state budget. A rise in real wages and people’s purchasing power is again attributable to the productive private sector. The level of inflation, provided the state refrains from interfering, is the result of market forces at work. The government should only report whether it abstained from influencing inflation by monetary levers, through price controls or tendentious calculation methods. Sadly, the government does not analyse itself in this light.
Now let us disregard figures and the phenomena behind them and look at other actions reported by the government. The report is loaded with a great deal of negligence. Accomplished tasks are not described in full. Phenomena are presumptuously interpreted, or even distorted, seeking to verify different achievements. An ordinary voter may not understand them. But he will probably not read the report at all. Those whom the report will reach – entrepreneurs, politicians, journalists, and economists – will easily recognise and unmask the deception.
The section on tax reform is crammed full of pranks like this. The report says, for instance, that the law on tax administration was revised and that a clear distinction line was drawn between sanctions for wilful tax evasion and penalties for accidental errors. No hint of unprecendented penalties reaching 10 percent of a company’s turnover. It is instructive to note that such penalties may be imposed not only for intentional tax evasion but also for a cashier’s mistake, a competitor’s trick or an officer’s blackmail.
The government had promised to do away with the practice of awarding tax officers (note, tax officers) bonuses for violations exposed. But the column indicating the government’s accomplishments talks about something different. It says that the government revoked its decrees by which judicial, controlling and some other institutions were allowed to use part of exacted money for bonus awards. No hint of eliminating bonuses for tax inspectors.
The report says that seeking to reinforce prevention of crime, contraband and corruption, the government doubled salaries of the judiciary. Indeed, salaries were raised. But did they help to reduce corruption and can they in general? Of course not, unless efforts are made to eradicate the roots of corruption and conditions conducive to its expansion. By enforcing cosmetic measures and ticking off reduction of corruption in the government’s agenda, the government undermines its incentives to get to the bottom of the problem and to do away with it.
One of the promises enshrined in the government’s programme was implemented over the full measure. The promise was to adopt business aid and investment promotion programmes. Programmes were created for supporting exports, revitalising enterprises, promoting investments, assisting small and medium-sized businesses, extending soft loans to farmers and co-operatives, and many others. A council for business promotion plus a semi-public company for import-export insurance were set up. Even the era of the leftist Labour Democratic Party saw no such boom in corporate welfare. If the state relates promotion of business and investment only with an increase in redistribution and if the state fails to liberalise the general business climate, it may boast of the multiplicity of programmes but not of business growth.
Virtually every point in the report could be particularised, questioned or refuted. What about certain dubious actions that were accomplished but never promised? No hint of these either. Naturally, why would they point out that the Law on Joint Stock Companies was amended so as to outlaw corporate borrowing from any sources but banks? This is but one example of countless unjustified restrictions. One may ask a rhetorical question why so much effort goes into doing bad jobs, while good ones are put off? Or why good ends are ruined with bad means?
The answers to these questions lie not in specific tasks nor in taking delight in exposing the government’s fallacies. The answers lie in the government’s economic orientation. Decisions of the government show it in favour of socio-democratic values – economic equality, a lack of confidence in private ownership, paternalism, and the like – which are being pursued under the cloak of conservative slogans. The ruling Conservatives are moving away from a market economy, a mandate given to them by the people of Lithuania disappointed with socialism. They are moving away, unfortunately for them and for us.