Lithuania in 1993 (1)



by Peter Tobin

Originally I had been asked by the executive committee of UCATT to assist in a series of seminars to be given in Vilnius, the capital of Lithuania, during the week of 9th-13th of November last year. The course was being organised by the International Federation of Building and Woodworkers based in Geneva and is part of a strategy to establish contacts with the trade union movement in the former Soviet sphere. My hosts were to be the two principal Lithuanian unions associated with Construction, and the aim of the course was to discuss the problems and tasks unions are facing in societies moving from a ‘command’ to a market economy. Within the pre-existing system unions were organs of the state with a guaranteed role and membership. Now independent they have to adapt to organisation, recruitment and collective bargaining in a ‘free market’. I had a very comprehensive brief from the education department of the IFBWW which acknowledged the tremendous difficulties before them and attempted to chart a way forward, through modules on “nuts and bolts” issues similar to our TUC’s shop stewards and safety representatives courses.3 photo

At the last moment however the event was postponed at the request of the two unions; the reasons given being the ‘political uncertainty’ in the country and the fuel and heating shortage. In regard to the former this referred to the fact that in the first of a two stage general election there had been a shock victory for the ex-communists – now regrouped as ‘Democratic Labour’ – over the extreme right-wing Sajudis government. The second round was scheduled for the 10th November, which was, as mentioned above, in the same week as the course. Added to this was Yeltsin ‘s decision to halt the withdrawal early in November from all the Baltic states. In regard to the latter, this was extremely serious. In Vilnius for example, there had been no hot water for three weeks, there were severe restrictions on heating throughout the country and an early winter was threatening.

Despite assurances from all concerned that I was still prepared to go on the basis of being a fraternal observer, they were adamant. (Even my protestation that, being Irish I was immune to the cold and wet was of no avail) In fact it was easy to sympathise with their situation; but I was considerably disappointed; all of these developments had only whetted my appetite.

Upon consideration I did decide to go after all the practical arrangements had been effected. General Office had acquired a cheap non-refundable ticket, I had organised a visa, on the advice of the IFBWW purchased small-denomination dollars and packed my bags. It was generally felt that a report-back from a country that has been a test-tube for free market “Thatcherite’ economics and which was as consequence in serious difficulty, would be useful. Accepted that is what has happened in this country also, but what makes Lithuania of particular interest is the sheer scale of the damage done by this experiment, as I hope to show in this article.


Lithuania: Recent Past & Background

Along with the other Baltic states, Lithuania was incorporated into the USSR · during the Second World War. For the Soviets it was dictated by sheer military necessity, but many Lithuanians, while making common cause with the Red Army against Nazism, saw it as the culmination of centuries of specifically Russian colonial penetration.

Throughout the suppression brought on by the Cold War they retained a strong sense of national identity. They were the first to take advantage of Gorbachev’s ‘Perestroika’, launching a strong nationalist movement which in the early months of 1990 repudiated the annexation of 1940 and, acting through its Supreme Council (parliament), declared Lithuanian independence. Although the right wing nationalists grouped around ‘Sajudis’ initially benefitted from this upsurge in electoral terms, they were only part of a broader coalition which included the left. The Lithuanian Communist Party for example, had been the first to break with Moscow in December 1989 and was very much part of the struggle against the continuing Russian presence.

It was a struggle which became turbulent during 1990 and early 1991 with massive street demonstrations, particular- 1 yin Vilnius, accompanying and fueling political and parliamentary developments. This spilled over into serious violence in January ’91 when the Red Army attacked the TV station in Vilnius, killing fourteen unarmed demonstrators. A referendum, one month later, showed 80% of Lithuanians in favour of independence.  Following the coup, events in Moscow in August ’91 which finally saw the end of Gorbachev and the rise of Yeltsin, the Soviet State Council recognised the independence of all the Baltic states and talks began on an agreed military withdrawal procedure.


Shock Therapy Economics

Following their election in March 1990 the new Sajudis government pursued radical ‘free market’ economics applied as ‘shock therapy’. It was axiomatic to their thinking that the Lithuanian people needed to be woken from their communist slumber and pitched into capitalism rapidly. They felt that they had lost fifty years under the Soviet regime and that therefore they had to catch up quickly, .no matter how painful that might prove to be. If this new order was to succeed people had to lose their collectivist habits and acquire individualistic ones, to lose their dependency on the state and become more self-sufficient Landsbergis, the Sajudis leader put it bluntly;

” ….. The more threatening aspects of the market need to be stressed; e.g. that economic security for the individual to a much lesser extent rests with the government in a market economy than in a planned one. It is for the individual to determine what to do and to reap the benefits as well as to pay the cost from one’s own decision.” (Basic Economics, A. F. Isachsen/ C. B. Hamilton, forward by V. Landsbergis, P3)

There were a bewildering range of measures taken to facilitate the development of the ‘market economy’, the most significant being as follows:

There was a big programme of privatisation and Lithuania, from being a command economy in 1990 was to see 60% of its industry moved into the private sector by last October. According to figures produced by the Economics ministry, this involved 1,804 companies out of a total of 2,204. (Baltic Independent, Oct 30-Nov 5 1992). Similarly agriculture was de-collectivised and the big state farms were broken up with individual and company ownership being encouraged.

There was an attempt to abolish price controls. Under the previous system basic commodities, such as salt, butter, flour etc were available cheaply and allocation was often by queueing. The economic radicals of Sajudis saw this as an intrusion into the market mechanism. It was a key article of faith for them that allocation should be by price and that prices should find their own levels within the self-regulating market mechanism. The euphemism for this process is “liberalisation”.

To attract foreign capital there was considerable assistance given to the creation of joint-stock ventures and it is currently estimated that there around a thousand operating in Lithuania. The official guidebook gives this breakdown:

“Russian and Polish entrepreneurs are the most active with respectively 300 and 200 firms, followed by Germans (116) and Americans 61 )” (Vilnius in Your Pocket, p12.)

Restrictions on buying and selling were also eased considerably, leading to, the phenomenon of street-vendor capitalism. This legitimised a whole traunch of former black-marketeers and gave expression to the new entrepreneurial spirit

The aim of the ‘reforms’ was to establish a strong entrepreneurial class, seen as a pre-condition for a flourishing market economy. That vulnerable classes and strata would suffer in any transitional period was perceived but accepted by the radical right as a necessary ‘cost of progress’.  They argued that eventually the wealth created by this new bourgeoisie would ‘trickle down’.

In 1990, the Springtime of Lithuania’s independence, there was considerable popular support for the policies of Sajudis. At a political and ideological level it successfully capitalised on a profound disillusion with the Soviet system which, for whatever reason, had all but atrophied economically. Compared to the capitalist West, with its advanced and exponentially developing technologies, its manifestly higher living standards and apparently generalised economic dynamism, communism had failed. The role of television during the liberation was crucial in rein-forcing these perceptions, it was no accident that the Red Army attacked the TV tower at Vilnius regarding it as the principal source for the promotion of Western propaganda. For the West television acts largely as a soporific, a mechanism for ‘unbending the springs of action’; throughout the East it had an effect akin to amphetamine, bombarding the collective retina with a fantasy vision of Western Society.

Bedazzled by this endless succession of glossy images, few learnt that market economies are many and varied, some being more interventionist at a social and industrial level than others, and all certainly with different developmental paths. Capitalism, instead, was seen as an undifferentiated phenomenon to which countries could simply switch over. And Sajudis was the local outlet with the franchise on that channel. The radicals throughout Eastern Europe were also greatly assisted during this period by free market proselytisers from the West; the high profile of Reagan and Thatcher at the very end of the Cold War gave added authority to local agents of” liberal’ economic change.

Any period of transition from a command to a market economy was bound to be difficult; the Lithuanian economy, like the others in the Eastern Bloc, was in a parlous state. Arising out of the struggle for national independence, trade relations with Russia, formerly its largest market, had collapsed. With no immediate alternative, this had a severe impact upon industrial production and living standards. In this situation, by trying to unlock a capitalist genie, Sajudis made a bad situation infinitely worse. It was the same experiment Yeltsin was attempting in Russia. The only time that anything similar had been attempted previously was in Chile in the late 1970s, where Friedman, the guru of monetarism, and some acolytes, known as the ‘Chicago School’ ran the economics ministry. They only lasted because they were backed by a military dictatorship. Sajudis was not to be so lucky!


Economic and Social Crisis

The elections of October and November ’92 were a referendum on the record of the Sajudis government. Their period in office had seen a collapse in the economy, hyper-inflation, disappearance or reductions in basic services, a currency crisis, increased unemployment, a growth in crime and corruption; all of which their policies contributed to unemployment

The privatisation programme added to the unemployment figures, the scale and the speed of it ensured job dislocation. Besides, the policy was as much about moving profitable enterprises into the private sector as it was about closing down – or ‘shaking out’ – inefficient ones. Resultant job losses were shrugged off as part of the ‘necessary cost’.

It reflected also a new attitude to unemployment. The radical rightists grouped around Sajudis had little time for the unemployment policies of their communist predecessors. They believed that guaranteeing jobs encouraged complacency among the workforce; under their regime unemployment would motivate it. From a free market perspective competition for jobs would reduce labour costs and thereby ‘free up the labour market’ .

A Sajudis supporter also put it to me that having a large pool of unemployed was an attraction to foreign companies looking for low labour costs.

Actual figures are either scarce or un-reliable. It is hard to assess a percentage figure and everybody doubles the official statistic. It was still reported as increasing in the month before my November visit. The amount paid in benefits for those registered in Vilnius was given as 4,338,771 Talonas (the new Lithuanian currency, exchange rate in November approximately 260 to the$ or 390 to the £). The unemployment rate was said to be highest among teachers, engineers, economists(!), people trained in the arts, locksmiths, drivers, and heavy industrial workers were also “finding it increasingly difficult to find a job”. (Baltic Independent, Nov. 13-19, 1992). The combined effects of privatisation and the collapse in trade has produced a catastrophic 50% fall in industrial production which for the foreseeable future will accentuate unemployment and its corollary – underconsumption.


Inflation & Shortages

The relaxation of state control over prices of basic goods initiated a period of hyper-inflation. Throughout last year, simple foodstuffs, sugar, salt, butter, flour, etc., rose in price between 15% and 20% a month. Stoking up prices even further were absolute shortages; agricultural produce for example, appeared sporadically, attendant upon the chaos in that sector caused by de-collectivisation.

In real terms wages and salaries did not keep pace with this price fever and there was hardship, especially for those on fixed incomes, such as pensioners. The government as a sour joke went – had eliminated that infamous symbol of the regime – the queue, but only by pricing everyone out of the shop. In the past twelve months alone the inflation figure reached something in the order of 1,000% and you could watch prices inch up on a daily basis.

The response of the government to this situation was simply to print more money, an ironic development for fanatical monetarists who started from the original doctrine that all price rises stem from an expansion in the supply of money. As Sajudis’ principal foreign economic advisers stated, without any equivocation:

“The principal responsibility for inflation will always rest with the authorities. They have a monopoly on the issue of bank-notes. And in the long term the supply of money in the economy will be decisive for the general rise in prices.” (Basic Economics, A.J. Isachsen/C. Hamilton, p.16, Vilnius 1992.)

Reality was of course different; prices rose for a number of interrelated reasons, the scarcity of goods, hoarding, the total collapse of economic confidence, the explosion in black marketeering, and the simple fact that there was no mechanism for restraining them. The new entrepreneurial class- ‘bisnessmeni’ -could charge whatever they could get away with. This led to massive profiteering at the expense of the consumers.

Certainly the explosion in the currency was part of the hyper-inflationary surge but it was the response of a bankrupt regime, desperately reacting to events created by its own dogmatism and cut off from other options because of its political and ideological blinkers.


Mafia & Crime

One of the most easily observed and worst features of the collapse in the communist regimes of Eastern Europe has been the huge growth in criminality of all kinds. It is a particularly acute problem in the Baltic States where smuggling, prostitution, extortion and black marketeering have all expanded under the remit of an ever larger Mafia network.

It should be said that the term ‘Mafia’ refers almost solely to an indigenous criminal stratum – local boys made bad – and not a bunch of imported Al Pacino look-alikes loafing around in Ray Bands. As part of an underclass they existed in embryo within the communist system but the arrival of ‘laissez-faire’ capitalism gave then added impetus; it was the equivalent of lifting the lid off a sewer.

In Vilnius, where a third of all Lithuanians live – out of a population of around 3.7 million, they are ubiquitous and have apparently untrammelled influence. Cafes, bars, hotel lobbies and public places generally teem with scarred, leather -jacketed heavies toting beautiful, impassive ‘molls’. They preside over all major areas of criminal activity and, in one way or another, most ordinary Lithuanians pay dues to them.

This was vividly illustrated, anecdotally, by the German Autumn Fair held in Vilnius between October and November which required a military style operation in order to bring German manufactured goods by convoy of 40 heavy lorries to be sold in a central and secured location. One of the organisers, speaking understandably anonymously, justified this commercial ‘blitzkrieg’ to reporters saying: “A big advantage of this is that we don’t have any problem with the mafia.” (Baltic Independent, Oct 30-Nov 5, 1992.) The report continued along the lines that this stratagem kept the prices down for the thousands who flocked to the event.

The mafia also thrive on smuggling and contraband; the Baltic States have become a cross-road between Russia and Europe with caviar, vodka and guns going one way; and drugs, pornography and manufactured goods going the other. The trade in caviar, for example, causes big revenue losses to the states concerned as it is purchased cheap! yon the black market at about $2 for a tin that can be sold for as much as $50 in the West. The ease of transfer of this precious commodity underlines the growth of corruption at all levels in these societies and in fact has a drag effect upon properly sustained economic development.

Yet it seemed that the Sajudis movement turned a blind eye to this phenomenon. Its relationship with the home grown mafia was almost cosy. Per-haps this was understandable; they had shared a common enemy in the previous regime and in many respects the line between the crook and the businessman was fuzzy, as each operated within the same entrepreneurial matrix that the government was keen to develop. Certainly most of the mafia encountered were extremely right wing, if not fascist, and certainly the government gave greater priority to hunting down ‘communists’ than criminals.

Organised crime aside; there has been a general breakdown in law and order which reflects the disintegration of civil society under the impact of economic collapse. This is observable in any society, including our own. Yet it bears repeating that it is the depth of the process that is so striking in the context of Eastern Europe. Itis against the background of real physical immiseration. On being asked reasons for the growth of crime and violence, a Lithuanian policeman gave this reply:

“If the economy’s biting the dust, then that affects people psychologically. If you have no money, then you get desperate. If people lived better there would be less discontent, less drunkenness and less crime.” (Baltic Independent, Nov 1- 19, 1992.)


This article appeared in July 1993, in Issue 35 of Labour and Trade Union Review, now Labour Affairs.  You can find more from the era at and