Beware of State Business!

frielp via flickr || CC 2.0

The Lithuanian Parliament has finally given the green light to the reform of state forest enterprises. Yet, the details of it remain sketchy. Many were bothered about their seemingly endless manipulation of decision-makers and rightly saw different interests hidden behind their protests and unwillingness to reform. But is there anything to alley taxpayers’ concerns about the use of their money? Not really.

Forty-two state forest enterprises employing four thousand individuals are nothing compared to municipal companies. There are six times as many municipal enterprises in Lithuania, employing around 20,000 people. While the work of forest enterprises is not that easy to spot, the performance of municipal companies affect us directly – from the price of district heating to road maintenance to environmental management to the renovation of buildings. When mayors have so much leverage, it is no surprise that some cannot help unleashing their inner “Lukaschenka”. Isn’t it fun to call your company and order to fill a pothole?

The activity of forest enterprises is limited to forestry. Sadly, the same cannot be said of municipal enterprises. Do you fancy opening a bookstore? Give it a try. Do you feel like expanding activity from road to building maintenance? Go ahead. Is there a party member looking for a job? Let him pick a position in a municipal enterprise…

Municipalities set the rules of play in their territories. A small business owner could hardly prove that the municipality pushed him out of the market to facilitate the conditions for a municipal enterprise. And even if he/she did, after several years, time and customers will be lost and the company will have gone bankrupt. Unfortunately, there is no way of prevention as municipal companies are only accountable to municipal administrations, not the parliament or the government. Your vassal’s vassal is simply not your vassal.

If you were bothered about the influence of state forest enterprises, the potential influence of municipal enterprises should appal you. The facts speak for themselves. This May the parliament voted to override the president’s veto, allowing municipal tenders to avoid competition. As a result, municipalities do not call for bids and make purchases from their own companies at any price they like, as if they were spending their own money.

What were the arguments? Well, politicians are deeply concerned about what would municipal companies do should they lose a bid. After all, they employ many people and have a lot of expensive equipment… How could such companies go bust like ordinary businesses? Simply put, the key argument is that municipal enterprises do not have the capacity to cope with competitive pressure and market forces; they would simply go bankrupt. What a laudable concern about businesses! But what should private companies do when facing unfair competition? Are their employees different and less important to the government?

It is hard to believe that even the recent scandal of Lithuanian Railways did not prevent politicians from proposing to remove the regulatory safeguards that prevent government waste by establishing a mandatory competitive procedure for public tenders. The above arguments, at the very least, must be a warning to the parliament. Imagine what would have happened if Lithuanian retailers demanded the parliament to prevent “Lidl” from entering the market due to potential competition? Of course, this may not have worked for private businesses, but it did for municipal enterprises. What was the political reaction? The majority have turned a blind eye and simply ignored those concerned.

I am not questioning the values of politicians. If they believe that the means of production should belong to the state, it is their right to do so. However, we are living in an independent Lithuania and so members of the parliament must at least be objective and impartial; any attempts to create exceptional market conditions for companies simply because they are public cannot be tolerated. Of course, not every mayor is building a political career and seeking influence through municipal enterprises, but some certainly are. By overriding the President’s veto and disregarding the opinion of all supervisory authorities, the Parliament did nothing else, but gave them a free hand. The question is why – because of a lack of competence or due to the influence municipal administrations have?