Sound Policy Reforms Push Lithuania in Doing Business Rankings

Ranked 16th in the 2018 Doing Business report by the World Bank, Lithuania has forged ahead by five positions largely thanks to the reforms backed by the Lithuanian Free Market Institute (LFMI). The country has long been praised for its rankings in the categories of starting a business, registering property, and enforcing contracts, but until recently, it has also been criticized for a heavy administrative burden and red tape pervading the areas of dealing with construction permits, getting electricity, and paying taxes.

To address the issue, back in 2015 LFMI took a three-year challenge to reduce time and effort required to get a building permit, to streamline the procedure of connecting new users to the electricity grid, and to merge the social security payments by employer and employee into a single payment. Their strategic action plan for increasing the country’s ranking embraced meticulous research designed to build the case for policy changes, formulation of specific policy proposals and legislative packages, as well as extensive advocacy and communication activities, including coalition building, testimonies, briefings, expert discussions, and intense publicity and media campaigns.

Given the Government’s aspiration to perform well in the Doing Business Rankings and readiness to simplify regulation in the areas of getting electricity and construction permits, LFMI has successfully tapped into the policy agenda to get their reform ideas across the finish line. A coalition building strategy has first paid off in March 2016 as LFMI gained passage for regulatory amendments thus reducing the number of days it takes to get a permanent electricity connection by 20 days. Then, a new construction legislation of July 2016 incorporated five major proposals from LFMI, removing two excessive procedures for getting construction permits and cutting the number of days required for getting a construction license by 34 days. Taken together, these amendments have pushed the country from the 20th to 16th place in the rankings.

However, the promotion of the unification of the tax base for social security contributions required a different strategy. Coalition building was no longer the most effective means of convincing opinion leaders and policy-makers. LFMI had to go all the way from reviving the very idea of a single social security contribution to offering an enforcement mechanism and convincing policy and decision makers that the reform is possible without increasing the tax burden. By choosing an agenda setting approach, LFMI has raised wide debates and have won important allies among opinion leaders, policy makers, prominent journalists and key stakeholder groups, building continuous pressure on the policy process and challenging decision makers to act. As a result, LFMI’s proposal to merge the social security contributions by employer and employee into a single payment has been included into 2016 election programs of all major political parties and has ultimately made its way into the program of the current government. This intent to reform and create a simple and transparent tax system will surely increase Lithuania’s prospects for a higher ranking in the years to come.

Importantly, all of the above did not only have a significant contribution to the business environment and competitiveness of Lithuania, but provided an example of how the right tools and the right approach taken by liberal-minded think-tanks help to attract people to their cause for a tangible impact. Nothing sells better than concrete solutions to concrete problems. Therefore, if the government has the same goals, a think-tank should deliver a reform; if not, a think-tank should set the agenda and position itself as the catalyst and architect of the reforms necessary.