MYKOLAS ROMERIS UNIVERSITY
FACULTY OF POLITICS AND MANAGEMENT
DEPARTMENT OF PUBLIC ADMINISTRATION
RŪTA SLUŠNYTĖ
“ANALYSIS OF GOOD GOVERNANCE PRACTICES IN THE MINISTRY OF ECONOMY THE REPUBLIC OF LITHUANIA SINCE 1996“
Erasmus IP Summer School Paper
Bialystok, 2010
Abstract
This paper was prepared for Erasmus Intensive Program (IP) Summer School in Bialystok, Poland, 2010. The aim of the paper is to present an analysis of instances of good governance in the Ministry of Economy of Lithuania in the period since 1996. The analysis has showed that the institution concerned among other things has a few outstanding mechanisms of policy formulation and implementation, namely: (a) schemes of business support,(b) business to government deliberation mechanism known as “Sunrise commission” and (c) project oriented structural reform. All these mechanisms can be generally considered examples of good governance, however, there are a few spots of concern: such as lack of inclusion, transparency and consequently a lack of empirical data about their overall effectiveness.
Keywords: good governance, Lithuania, Ministry of Economy, business support.
Introduction
This paper is the part of the project of Erasmus IP Summer School in Bialystok. Its subject is Ministry of Economy which plays significant role of the growth of Lithuania prosperity in the future determining the success failure. In Lithuania special institutions charged with the management of the economy of the state have existed since 1918. In the independence period since 1990 the current Ministry of Economy has been established in 1996 after merging five separate ministries. Currently the functions of the Ministry include:
· implementation of general economic (macroeconomic) policy;
· implementation of the National Long-term Development Strategy;
· within its competence, shaping and implementing the economic sectoral policy;
· regulation of the activity of economic entities and management of property owned by the state;
· within its competence, shaping and implementing the foreign economic policy;
· co-ordination of implementation of European Union (hereinafter – the EU) internal market policy in Lithuania;
· administration of financial assistance from EU Structural Funds.
The main aim of this paper is to analyse the practice of policy formulation and implementation in the Ministry, its mechanisms and compatibility with the principles of good governance.
The paper has the fallowing objectives:
1. Description of the mission of the Ministry and its consequent policies.
2. Description of the different implementation mechanisms for the policies concerned.
3. Identifying the strengths and weaknesses of Ministries’ policies in the context of good governance.
The analysis is organized around the principles of good governance which were a part of the curriculum of the summer school. These principles include: orientation in consensus, participation, the rule of law, effectiveness and efficiency, equity and inclusiveness, responsiveness, transparency, accountability.
I. Mission and the Main Policies for Its Implementation
Mission of the Ministry of Economy is to develop positive legal and economic environment for economic development and ensure public welfare and employment. Major focus is placed on promotion of innovations, improved administration of the EU structural funds and small and medium-sized business development.
Innovation is one of the principal determinants of successful development of the national economy or an individual undertaking. Innovation development and intensification provide an opportunity to all-round modernisation of production and service provision structures, creation of new as well as upgrading of manufactured products, applied technologies and simultaneous increase of their international competitiveness, which is one of the key factors for the national economy growth. Innovative undertakings and enterprises geared towards changes together with the uptake of the up-to-date knowledge are the mainspring for the national economy growth and the source of efficiency.[1]
Innovation support Establishments in Lithuania: Public Institution Lithuanian Innovation Centre and Science and technology parks. The PublicInstitution Lithuanian Innovation Centre (LIC) is a non-profit organization, providing innovation support services to enterprises, research institutions, industry associations and business support organizations. A science and technology park is a physical or virtual place where enterprises are established which perform applied research works and other innovation activities and render specialized value added services, such as business incubation, consultancy and technology transfer. The parks are mainly aimed to enhance the competitiveness of the region or a particular territory by promoting quality and innovation culture among their members, organizing knowledge and technology transfer from the place of their creation to companies and the market, and actively promoting the development of new innovative companies.[2]
Lithuanian Innovation Strategy for the year 2010-2020 is a long-term strategic planning document which sets vision, objectives, goals and results to be achieved in the field of Lithuanian Innovation up to 2020. The purpose of this Strategy is to mobilize and manage state resources effectively: to create competitive knowledge economy based on the latest technologies and qualified human resources. Ministry of Economy is responsible for administering the various programs, which are appointed to certain state budget appropriations. [3]
The Ministry of Economy makes active efforts to cooperate at all levels with public authorities, social partners, scientificestablishments and business associations that can bring helpful consultations, advice and proposals instrumental in pursuing the Ministry’s objectives in order to contribute to more rapid national economic growth.[4]
EU structural funds are financial instruments of European Union's regional policy which help to reduce disparities between different Member States across the EU.There are only two structural funds in 2007-2013 programming period: European regional development fund and European social fund. European Union structural assistance in 2007-2013 is provided under base of different documents compared to 2004-2006 period. The investment areas under competence of Ministry of Economy during programming period of 2007-2013 are focused on business, including research & development, business environment, tourism and energy sectors.[5]
Development of small and medium-sized enterprises is a major decisive factor determining competitiveness and growth of the market economy inEuropeand other countries of the world.
The Government of the Republic of Lithuania approved the Strategic Guidelines for Small and Medium-sized Business (hereinafter referred as “SMB”) Development for the period up to 2008 and measures for SMB Developmentby its Resolution No. 1104 dated 19 October 2005. The Strategic Guidelines for SMB Development sets out medium-term SMB development priorities and their implementation measures. The following medium-term SMB development trends were defined in the Strategic Guidelines for SMB Development: 1) to improve the legal and economic environment for SMB; 2) to improve financial assistance for SMB; 3) to encourage entrepreneurship in regions; 4) to promote competitiveness of SMB entities.
II. Policy implementation mechanisms
Institution has a few outstanding mechanisms of policy formulation and implementation: schemes of business support business to government deliberation mechanism known as “Sunrise commission” and project oriented structural reform.
Ministry supports business development by financial assistance:
a) Financial engineering: with a view to enhance competitive edge of Lithuanian enterprises special attention is given to improvement of financial engineering instruments (guarantees, micro-crediting, venture capital, etc). This is of special relevance to start-ups as well as to enterprises that have good potential for growth but need risky investment.
b) Micro-crediting: in 2006, the micro-crediting system was launched in Lithuania: 3 banks were selected for granting micro-credits that commenced micro-crediting (loans in the amount up to 25 00 EUR or its equivalent in another currency) in August2006. In2007, all the banks granting micro-credits disbursed all the funds aimed at micro-crediting (the allocations totalled almost 29million LTL). Further micro-crediting is executed from the funds received (repaid). Over the period between August 2006 (since the start of micro-crediting) and 31 December 2007, the total of 453 enterprises, of which 90 percent were micro-businesses, 9percent small enterprises and 1 percent medium-sized enterprises, made use of micro-credits.
c) UAB „Investicijų ir verslo garantijos” (INVEGA):the guarantee institution INVEGA that was founded in 2001 guarantees the repayment to the credit institution of the first loan instalment (up to 80percent) of the amount of principal granted to the SME entity and compensates up to 50 percent of the interest on the guaranteed loan. This reduces enterprise crediting risk and creates conditions to a larger number of enterprises to make use of bank financing. In 2007, INVEGA issued 489 guarantees to SMEs, i.e. 1.3 time more than in 2006 (368guarantees). Guarantees issued last year helped enterprises to raise loans in the amount of 228.3million LTL (guarantees for loans totalling 193 million LTL were issued in 2006).[6]
There is the Small and Medium-sized Business Council, that is comprised of representatives of associations, members of which are business entities, which has been made statutory with a view to ensure cooperation between SMB representatives and state authorities.[7]
Ministry of Economy has implemented the decision-making process ("Sunrise" Commission), which enables business organizations to consider proposals for the Government as a priority.[8]
Moreover it has implemented project management system.On October, 2009 Ministry of functional organizational structure has been transformed into a functional design.This allowed to reduce the total number of units performing functions, optimizing their performance management and the introduction of project management.These processes have been established to manage the minister directly responsible Project Management Unit.
III. Strengths and weaknesses analysis
Above I had described the three outstanding policies that are most innovative as compared to the general trends in the Lithuanian civil service.
These mechanisms are specifically intended for the improvement of governance. However, these mechanisms were introduced only recently and effects are not yet well understood.
Table 1 summarises the strengths and weaknesses of the analyzed policies based on information available.
As it is obvious from the table above principles of good governance are generally observed however there is a room for improvement. Nevertheless one can make an argument that the expansion of such practices has the potential possibility to affect the condition of governance on the ministerial level.
Analysis of support for business showed, that it fulfils almost all basic good governance principles. There is a lack of freely available data to determine only two principles (effectiveness and efficiency and transparency). Studying “Sunrise” commission emerge that it has nearly all basic good governance principles, but again there are problems in determining effectiveness and efficiency. Because project oriented structural reform is an internal management mechanism there is significantly less information about its’ outcomes, but available data allows us to argue, that generally this mechanism also satisfies the principles of good governance.
Table 1. Summary of analysis of strengths and weaknesses of selected policy mechanisms in the Ministry of Economy.
Support for business / “Sunrise” commission / Project oriented structural reform1 orientation in consensus / + / + / ?
2 participation / + / + / +
3 the rule of law / + / + / +
4 effectiveness and efficiency / ? / ? / +
5 equity and inclusiveness / + / + / +
6 responsiveness / + / + / +
7 transparency / ? / + / ?
8 accountability / + / + / +
Meanings of symbols: “+” – principle is observed; “-“ – principle is not observed; “?” – not enough data for evaluation.
Conclusions
1. There are three main policies for mission implementation: innovations, EU structural funds and small and medium-sized business development.
2. Ministry of Economy policy implementation mechanisms: schemes of business support, business to government deliberation mechanism and project oriented structural reform.
3. The scheme of business support in the Ministry of Economy is a governance method that generally complies with the basic principles of good governance and plays a significant role in advancing policy goals of the Ministry. Analysis in the paper has only determined a lack of data with respect towards effectiveness, efficiency and transparency.
4. Studying “Sunrise” commission showed that it covers nearly all good governance principles, except for effectiveness and efficiency, analysis for which could not be completed due to a shortage of available data.
5. Despite the fact that there is not much information about project oriented structural reform, analysis suggests that it generally satisfies the good governance principles.
Sources of information:
1. Lietuvos Respublikos ūkio ministerijos 2009 m. Veiklos ataskaita
2. History of the Ministry of Economy. http://www.ukmin.lt/lt/veikla/istorija
3. Innovations and technologies. http://www.ukmin.lt/en/innovations
4. Innovation Support Establishments. http://www.ukmin.lt/en/innovations/finance.php
5. Paramos teikimas. http://www.ukmin.lt/lt/veikla/veiklos_kryptys/pramone_ir_verslas/Paramos_teikimas/
6. About the Ministry of Economy. http://www.ukmin.lt/en/About/
7. European Union structural assistance. http://www.ukmin.lt/en/struct_funds/2007-2013/2007_2013_description.php
8. Small and Medium-sized Business. http://www.ukmin.lt/en/small_medium/
9. Support for Business Development. http://www.ukmin.lt/en/small_medium/Support/
[1] http://www.ukmin.lt/en/innovations/
[2] http://www.ukmin.lt/en/innovations/finance.php
[3] http://www.ukmin.lt/lt/veikla/veiklos_kryptys/pramone_ir_verslas/Paramos_teikimas/
[4] http://www.ukmin.lt/en/About/
[5] http://www.ukmin.lt/en/struct_funds/2007-2013/2007_2013_description.php
[6] http://www.ukmin.lt/en/small_medium/Support/
[7] http://www.ukmin.lt/en/small_medium/
[8] Lietuvos Respublikos ūkio ministerijos 2009 m. Veiklos ataskaita