Economy of Lithuania | True Lithuania
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Economy of Lithuania

The average Lithuanian is richer than 85% people in the world. He or she earns more than an average person in every nation of Africa, Latin America and most of the countries in Asia. However, Lithuania is lagging behind countries like those of Western Europe, the United States, Canada, Japan or Australia.

Countries richer than Lithuania (GNP per capita 2017) are green in this map while those poorer than Lithuania are red. ©Augustinas Žemaitis.

Among the member-states of the European Union and NATO Lithuania is one of the poorer countries. But it is richer than or on par with other Eastern European members of the said international organizations with the exception of the Czech Republic, Slovakia, and Slovenia.

Lithuania is a post-industrial society with some two-thirds of the population working in the service sector. The society is relatively egalitarian with healthcare, primary and secondary education being funded by the state. Undergraduate, graduate, and postgraduate education is also state-funded for the better students.

However, corruption is a major problem in the healthcare sector as many doctors expect bribes to be paid to them by patients so that they would receive preferential treatment. Corruption is rampant in other sections of the society as well, especially traffic police and government purchases (e.g. road construction for taxpayers' money). These practices are largely a legacy of the Soviet regime. However, Transparency International places Lithuania at some 50th place of 182 countries in its Corruption Perception Index (the higher the place - the less corruption there is), ahead of all states formerly behind the Iron Curtain save for Estonia and Poland (but far behind the West, Japan or Australia).

The largest employer in Lithuania is the MAXIMA group that owns a chain of retail shops well visible in Lithuania as well as Latvia, Estonia, and Bulgaria. This is the largest company in Lithuania and its owner Nerijus Numavičius is the country‘s richest person. Just like many Lithuanian businesses MAXIMA is primarily owned by a single person (or a single family) rather than being a publically traded company.

Largest industries in Lithuania are oil refinement (Mažeikių Nafta in Mažeikiai; 36,2% of total 2011 exports) and fertilizer manufacturing (Lifosa in Kėdainiai and Achema in Jonava; 8,9% of exports). Processed and unprocessed food amount for 16,9% of exports. Traditionally strong clothing industry has been hit by outsourcing to Asia.

The agricultural sector now employs only some 12 percent of the population but they are good at lobbying. Therefore the government generally subsidizes agriculture. The European Union adds to this although the European Union subsidies are significantly lower than for farmers in countries like France. Typically Lithuanian farmers grow grain, pigs, chicken, and cows. The "traditional agriculture" where a family owns a single cow, a single pig and some pastures (rather than combining land to form a large business) is declining but still well entrenched in the Lithuanian countryside. Village tourism offers a new opportunity for Lithuanian farmers and tourists alike.

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Taxes in Lithuania

29% of GNP are redistributed in Lithuania through taxes (European Union average is 38%). While there are many different taxes in Lithuania only a few behemoth taxes brings in the state the most income.

Some 2/5 of Lithuania's state budget is collected as Value Added Tax. The rate is 21% and whenever you buy something in Lithuania this is added to the price (there is a mechanism of VAT return if the same thing is resold several times so that VAT is typically paid only once).

1/5 of the national budget is collected in personal income tax. This is deceiving however as much of income taxation goes to other budgets (municipal and social), some of it even formally considered to be other taxes. The true burden is big: every employer has to pay the state almost as much money as it pays the employees (i.e. 40%-50% actual income tax). While nominally a flat rate the income tax is actually progressive as the untaxed portion gradually decreases as the salary increases.

Company income tax (known as Profit tax) is 15%, with additional 20% on most dividends paid to natural persons (meaning 33% effective tax rate on dividends).

Excise duties make the third largest income for the state (1/5). Fuels, electricity, tobacco, and alcohol are additionally taxed this way. The European Union typically requires high excise duties so Lithuania was forced to increase them. For this reason, car fuel in Lithuania is nearly double as expensive as in the USA where there is no excise.

The Real Estate tax is paid only by companies and owners of real estate deemed expensive (0,3% to 3% of value annually). Land tax is paid by every owner(0,01%-4%). Municipalities decide the actual percentage but the "value" here is the official value which may be lower than the market value. There are no other property taxes.

There is no inheritance tax for the close-of-kin.

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Lithuanian ethics, virtues, and morale

Lithuanian ethics and morale have been largely formed by alternating periods of self-rule and foreign regimes (each of them spreading its own ideology, in many cases by force). The prime lasting external influences are Christian (14th-19th centuries), Soviet (1940-1990) and Western European (post-2004).

Business, work, and financial ethics

For centuries Lithuanians had to work hard to achieve prosperity in an unwelcome climate and this respect for hard work remains. Workers at private companies work faithfully and school requirements are massive. Strikes are rare and overtimes are done if needed. Laziness is frowned upon. Employees also often perform tasks that are not included in their job title.

The Soviet system where results would not be rewarded created a very different work morale in state-owned and municipal institutions, many of which are still infamous for procrastination and corruption. This declines as the Soviet generation is replaced by a post-Soviet one.

Caring about the future is another virtue and many families save large sums of money "for a black day" (as a popular saying goes). Living on credit is frowned upon and may be seen as a form of dangerous addiction comparable to compulsive gambling (why pay interest when one can save up instead?). The way Americans use up their credit limits is completely alien to most Lithuanians.

In business circles, however, credits are the main source of funding as issuing shares is even less welcome in Lithuanian psyche. Most Lithuanians feel the need to have something "their own" and dislike to share or to be controlled. To be merely a CEO responsible to hundreds of other shareholders is seen just as a career mid-point before starting a family-owned business (even if it won't ever grow that large). In ~75% of the Lithuanian companies, CEOs are also the main shareholders. The boards also typically consist of company owners. As such, the personal values/opinions of the key shareholders may outweigh financial gain in decision-making. As businesses commonly double as a mean of self-expression, franchises are not popular.

Own home is also cherished and individualized. The native neighborhood, native city, and native region are respected as a part of personal identity. The Family is seen by many to be above all at its importance (and the inspiration for many long-term decisions).

Loyalty to the employer is less common, however: some may spend decades at a single company out of convenience, but others (especially the youth) switch jobs if a better offer is available (especially in the same city). Salaries are the prime motivation to stay or leave. Lithuanians tend to see little value in what isn't "immediate money", making schemes such as share ownership and pension contributions nearly non-existent. History-inspired fears of revolutions, legal/taxation changes, economic collapses (that would wipe out the promised benefits) may contribute to this. "Perks" (health insurance, sports club memberships), even if available, are derided as wasteful by many employees ("let us choose ourselves where to spend our money"). Work events are often limited to annual parties (e.g. Christmas). One reason for all this is that Lithuanian lifestyles depend relatively little on social status and especially much on things like the generation. Therefore the fact that people share a job doesn't help much to find a non-monetary benefit or activity the majority of them would enjoy.

Prestigious jobs are those that give either money or admiration. However, the perception of economic benefits is slower to change than market realities, meaning some of the best-paying professions are not (yet) very prestigious (e.g. programmer) while some oversupplied ones still are (e.g. lawyer). The aforementioned "admiration" may come both with fame (e.g. model, sportsman) or gratitude (e.g. doctor). Businessman and (especially) politician jobs have a mixed image as the benefits there come with heavy risks and a perceived need for some immoral decisions. All-in-all, white-collar jobs are seen as far more prestigious the current "university generation" often regards blue-collar jobs as "below them". Many consider a degree in humanities and social sciences to be a "generic degree" that improves access to any white-collar job. Therefore the "door-opening" prestigious specialties are often selected by students instead of the ones more related to the jobs available.

After death, the inheritance is usually split among children, who are expected to "continue the family path" by living in the same home and doing the same business (if the parents had any). The law supports such disposition of wealth by waiving inheritance tax for family members. Many key Lithuanian decisions (business, home improvement, wealth accumulation) are thus made taking into account further generations. However, massive emigration means that some children break with parents' "ways of life" regardless.

Law and morale

Many Lithuanians feel more fear/disdain towards governmental institutions than trust/respect. These attitudes partly date to Soviet occupation, when the laws were immoral and the government was alien. Avoiding authorities used to be the best practice and cheating them was considered honorable. Even if the government is now freely elected, many laws are followed only when strictly enforced.

This protest painting of rats devoiring a Lithuanian flag represents the way many Lithuanians feel about the governmental institutions (rats). It was painted in a public campaign against upholding certain court decision in a child custody case, perceived to be immoral (the doll represents the child).

Most Lithuanians are genuinely tolerant towards offenses that cause no direct harm. Decades of absurdly strict Soviet regime made them especially libertarian-minded. State regulation in many spheres (e.g. parenting, traffic regulations, "hate speech", taxation) is widely considered to be excessive or wrong. As such, those who report such violations tend to be blamed by many peers as "skundikas" (the same pejorative that was used for people who informed the KGB on government critics).

Litigation is thus mostly limited to major property disputes and heavy injuries. People are expected to "get over" simple "emotional distress" or at least limit their "retaliation" to appropriate negative feedback, otherwise, they may be seen by peers as either weak or profiteering. After all, many Lithuanians suffered far worse fates under the Soviet occupation than could happen to anybody today.

In a real trouble Lithuanians do help, but firstly they should be able to judge that the trouble is real. For instance, many Lithuanians would neither stop nor report a streetfight because they would assume both parties want to fight. Therefore somebody in need of help should clearly indicate it. Even after deciding that something needs to be done some Lithuanians would prefer direct action or personal acquaintance networks over the distrusted authorities.

The rift between people and state authorities is furthered by corruption, cronyism, and embezzlement at the latter. Culturally foreign to Lithuanians, these practices are seen to be a Soviet import which permeated the society so much that it is sometimes impossible to do without them (e.g. if one competitor bribes a corrupt licensing agency and the other doesn't, his business may be hampered). Back under Soviet occupation personal gain at the expense of government used to be condoned by peers (at the time the government controlled the whole economy, including factories, shops, agriculture, and services, meaning most property crimes would have actually been "against the government"). The "old system" has lost this "moral ground" with independence, but it is too convenient for those benefiting from it to be wilfully abandoned.

The younger generation tends to have more trust in state authorities and law (confidence in police experienced the largest gradual opinion poll gains).

Lithuanian confidence in institutions in years 2000 and 2015. In the post-Soviet 1990s, newly-free non-governmental behemoths such as the media and the church were commonly seen as chivalrous fighters for justice, while the directly-elected president used to be the only hope many saw in the government. The generational change increased confidence in low-level non-political agencies, but the institutions that make the key or final decisions remain mistrusted, undermining confidence in system-as-a-whole. Media lost much of its confidence with the rise of political/business influence and tabloids. Sources: Lietuvos žinios, Vilmorus.

Westernization of the law itself (especially after 2004 EU membership) however had its drawbacks on societal cohesion. While some changes were well-received and the economic reform spurred growth, the Western-style social restrictions have gained little popularity outside parts of "the elite". They ushered the end of the 1990s libertarian Lithuania and increased the number of voices claiming "We have made our stand on January 13th, 1991, to end restrictions rather than replace the old restrictions by new ones".

Charity and help

Many Lithuanians would proudly note that their nation is far less materialistic than the West. However, there are less "mass campaigns" for/against a cause in Lithuania as "advertised goodness" is often suspected of being insincere or even fraudulent. The majority of Lithuanian "good deeds" are instead done personally or clandestinely towards less well-off relatives and friends. Donating to the church (which then supports the needy) is popular among the religious.

The TV-station-led charity programs (asking for SMS donations) are a relatively new phenomenon but already a well-entrenched one, probably helped by a historically massive Lithuanian trust in media. Responsible buying has been also slowly gaining ground.

Bedų turgus (Market of misfortunes), one of the popular TV projects that are collecting charity. Here people may offer their 'misfortune' for others to cover it by money.

Many "foreign troubles" however are less acute or non-existent in Lithuania, leading to less local attention towards them (these include terrorism, surveillance, racism, religious intolerance, global warming, gender inequality). Russian imperialism is considered to be a/the key global menace and compassion/charity towards its victims is a popular activity. Orphan(age)s and sick children are favorite local recipients of help.

Lithuanian non-materialism is not limited to helping those poorer than themselves. Often, Lithuanians do not expect a reward when rendering a service to people they personally know, regardless of their financial position (even if such services are his/her job, e.g. it is possible that a barber would cut his/her relatives, friends, and neighbors for free). These attitudes probably date to the Soviet economic system, when the "official services" were scarce and inefficient, leading people to "help each other" with what they could instead.

However, Lithuanians do cherish and safeguard the property they already own. Among the middle-aged and older people this may go to such lenghts as not using it as frequently as a person would want so the property (e.g. a piece of clothing) would serve longer. Even among the youth the Western concept that it is better not to resist a mugging is often regarded as laughable: a Lithuanian is expected to honorably defend his/her property from the criminals even if that poses some risk to one's health. Yet again, all this is related to the Soviet experience, when many things were effectively irreplaceable as they were not available in shops.

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