Most of the world's planned economies are rapidly turning to capitalism. The present state of world economic affairs has a long history set in the struggle to make a transition from philosophies of absolutism and economic mercantilism to more free market approaches. Adam Smith preached free-trade and laissez-faire policies in the mid 1700's. Some nations followed his concepts while others later moved toward the teachings of Karl Marx and Friedrich Engles and scientific socialism. In recent history, the largest group of countries to unite and follow the planned economy model were those in the U.S.S.R.

Under a socialistic system the government made virtually all business decisions "for the good of the state." Bureaucrats decided not only what goods and services to produce, but how they would be distributed. As these nations followed planned economic systems, most of the free enterprise business skills and practices used by producers and merchants during earlier years were gradually lost.

Change finally came almost 50 years later when Mikhail Gorbachev became General Secretary of the Soviet Communist Party. The international account of these events report that his program of economic perestroika was aimed at decentralizing the economy and providing limited opportunities for land ownership and free enterprise. Other accounts within Lithuania do not tell the same story. It was thought that Gorbachev inherited a political union that was falling apart and he was forced into surrendering some power in order to preserve the empire. He made many threats to Lithuania and the two other Baltic republics. He apparently had no intention of allowing them to withdraw. A confrontation followed which involved an unsuccessful attack on the Lithuanian Parliament by the Soviet army. Lithuania saw a "now or never" opportunity to become independent. Whatever events one chooses to accept leading to the U.S.S.R. breakup, history shows that the last Soviet troops left Lithuania in 1993.

With the dismantling of the Soviet Union in the late 1980's and early 1990's, several Eastern European nations, and 15 newly independent (former U.S.S.R.) republics, began moving from planned economic systems to capitalism and the free enterprise model [Hill, 1994]. The circumstances in each of the newly independent Central and Eastern European nations are so different that it would be overwhelming to attempt to gather data and analyze the situation for the entire group. By looking at individual nations, researchers can identify similarities or differences, and draw conclusions at a later time.

This paper deals with practical problems that one smaller independent nation, Lithuania, is having converting back to capitalism and free markets. It does not deal with the political aspects of the unification or breakup of the U.S.S.R., nor does it deal with groups of newly independent nations. The goal, of course, is to help identify and deal with the problems of transition in Lithuania. This can speed the relearning of free market business skills so that Lithuania can make changes that lead to stability and economic prosperity.

The authors of this paper have a special interest in seeing Lithuania make rapid progress in the move to capitalism and free markets. Robert Vichas is a Lithuanian-American who was brought up and educated in the U.S.A. and now lives in Panevezys, Lithuania. He is the head of the Management Training Center that is funded by the United States Agency for International Development. Ausra Klimaviciene is a native Lithuanian and teaches at Kaunas University of Technology at Panevezys. She has traveled and taught in the U.S.A. Gerald Crawford is an American professor (of marketing) at the University of North Alabama in Florence. He has taught in two separate training programs, sponsored by the Management Training Center, in Panevezys. Hans E. Klein is the Executive Director of the World Association for Case Method Research and Case Method Application (WACRA) at Needham, Massachusetts. He has also taught and conducted case workshops in Lithuania.

 
The rich culture of Lithuania goes back thousands of years. Lithuanians are a branch of the Balts whose settlement dates from around 200 B.C. Lithuanian is one of the oldest languages in Europe. The first written mention of Lithuania was in the Annales Quedlinburgenses in 1009 A.D. The first Lithuanian state was established by the Grand Duke Mindaugas in 1230. He converted to Christianity briefly and was crowned king of Lithuania in 1252.

The Grand Duke Gediminas, who reigned from 1316 to 1341, is credited with founding Vilnius at the junction of the Neris and Vilnia rivers. A dynasty united Lithuania and Poland from 1386 until 1795. Lithuania reached its height under the Grand Duke Vytautas the Great, who ruled from 1392 to 1430. He strengthened the foundations for a Europeanized and Catholic state. Driving back the Turks, he extended the grand duchy almost to the Black Sea. In 1410, Vytautas and his cousin Jogaila decisively beat the German crusaders of the Teutonic Order in the great battle of Tannenberg. He celebrated his victory in his magnificent red brick castle on an island at Trakai.

The Lithuanian-Polish union came under threat from Prussia, Austria and Russia at the end of the 18th century. An uprising by the Lithuanian patriot Col. Jacob Jasinskis in 1794 was defeated, and most of Lithuania was annexed by Russia in 1795. The new rulers tried to Russify the country, closing Vilnius University and banning the publication of Lithuanian books in the Latin alphabet. In the late 1800's, brutal persecution and economic necessity forced thousands of Lithuanians to emigrate.

The Lithuanian state was reestablished in 1918 after the defeats of Russia and Germany in World War I. Trade and industry flourished. Nevertheless, beginning in 1919, following heavy fighting between Poland, Russia and Lithuania, Poland annexed Vilnius, forcing Lithuania to transfer its capital to Kaunas.

Lithuania was occupied by the Soviets in 1940 and then overrun by Nazi Germany in 1941. The republic was briefly reestablished in the interval between the two occupations, which saw tens of thousands deported to Siberia and the near disappearance of the Jewish community in Hitler's "final solution." The Soviets returned in 1944.

Armed resistance against the Soviets continued for several years after World War II, but even after more than 50 years under the Soviets, Lithuanians retained the goal of independence. On March 11, 1990, the Republic was again proclaimed. Soviet intervention resulted in 14 unarmed civilians being killed at the TV tower in Vilnius. After the Moscow putsch collapsed, Lithuania won international recognition and was admitted to the United Nations on September 17, 1991.

On February 14, 1993, Lithuanians turned out to vote for the first directly elected president of Lithuania, Algirdas Brazauskas. Lithuania's own currency, the litas, was reintroduced in 1993 and was pegged to the U.S. dollar. The last Soviet soldier left the country later in 1993 and Lithuania soon became a member of the Council of Europe in Strasbourg [danute@ktl.mii.lt, History, 1997].

Lithuania is part of the economic region, known as the Baltic Republics, which extends along the Eastern coast of the Baltic sea. Lithuania's area is 65,000 sq. km. Lithuania borders Latvia to the north, Byelorussia to the east and south, and Poland and the Kaliningrad region of the Russian Federation to the southwest. The total length of the mainland border is 1747 km. with the sea coastline adding another 99 km. From east to west the country stretches 373 km. and the distance from the southern end of the country to the northern boundary is 276 km.

Lithuania is part of the East European Plain with three lowland plains (Pajuris Lowland, Middle Lowland, and Eastern Lowland) and three uplands (Zemaiciai or Baltic Upland, Aukstaiciai Upland, and Eastern Upland). The highest point in Lithuania is Kruopine Hill (293 meters).

The climate of Lithuania is transitional between maritime and continental. It is maritime along the 12-15 km. coastal zone, and continental in the eastern part of the country. From the point of view of suitability for human health and economic activities, the climate is considered favorable. It is characterized by seasonal changes of temperature four times a year, by moderate heat in summer and by adequate humidity and a sufficient number of bright days. The negative features include long autumns and winters, and a relatively short vegetation period (169-202 days).

Rivers and Lakes in Lithuania have been long used as transportation waterways. With the exception of the Nemunas, however, they are not very suitable for commercial navigation. There are 722 rivers of 10 km. or more in Lithuania. Twenty-one of them are more than 100 km. long. Most of the rivers flow across the Middle Lowlands and the western part of Zemaiciai Uplands.

There are more than three thousand lakes in Lithuania, 25 of them with areas of 10 sq. km. or more. They account for approximately 1.5 per cent of Lithuania's territory. Most lakes are concentrated in the Aukstaiciai Uplands where they form the lake systems of Ignalina, Moletai, Zarasai and Dubingiai. The deepest lake is Tauragnai (61 km.)

Woodlands cover 28 per cent of Lithuania's territory. The total area is 1823 thousand hectares, about 32 per cent of which are considered to be young forests [danute@ktl.mii.lt, Land and People, 1997]. 

This section should be prefaced with a note that reliable data on the Lithuanian economy is scarce, or unavailable. Available data is often nothing more than estimates, undocumented, or is completely out of date. The situation in the country is changing rapidly and this creates difficulty in making comparisons. However, there seems to be a consensus that Lithuania's private sector is among the faster growing economies in Central and Eastern Europe. It should also be remembered that the implementation of an economic reform plan, based on free markets, and the search for the most suitable transition model for Lithuania is still not completed. The legal foundation for an economic system also is also being founded. It will be based on private property as the foundation of normal economic and market relations. Further, the privatization of industry and agriculture is still in process, as is the development of a commercial banking system [danute@ktl.mii.lt, Economy, 1997].

The Lithuanian Government has taken steps to create a favorable environment for restructuring industry. The main branches of industry in Lithuanian are food, oil processing, machinery, chemicals, building materials, timber, furniture, and electricity. By the end of February 1994, 527 large and medium size enterprises had been privatized by issuing shares, and 137 small enterprises were sold at auctions. To accelerate reconstruction, the government has approved a plan of specialization and privatization in larger enterprises [danute@ktl.mii.lt, Economy, 1997].

Privatization is presently being carried out and it includes restitution of property to its former owners, privatization of large, medium and small state owned enterprises, and privatization of municipal property, including housing. By the end of February 1994, the privatization of 2062 large and 2370 small enterprises had been carried out. The largest portion of small state firms has been sold. Privatization of large and medium size enterprises has increased since 1992, when investment companies, the number of which is about 360, joined the privatization process.

Agricultural land reform is also under way. By January 1994, about 113 thousand farmers were registered for an average of 8.8 hectares of land per farmer. In 1993 the total monetary value of agricultural production decreased by 8 per cent, though actual crop yields increased. The main crops are grain, potatoes, vegetables, fruit and berries, sugar beets, and flax.

In 1993 a significant decline in the construction industry was noted. The volume of all construction decreased by 39 per cent. Private companies accomplished about 62 per cent all construction work. Housing construction was 2.1 houses per thousand population, and dropped to 70 per cent of the previous period [danute@ktl.mii.lt, Economy, 1997].

Exports are increasing, but the trade balance remains unfavorable. In 1995 the value of exported goods totaled 10,791 million litas compared with imports valued at 12,039 million litas. Trade with the West is expanding while trade with CIS countries is decreasing. The major trading partners are Russia, Germany, Byelorussia, the Ukraine, and Latvia. Major exports are textiles, chemicals, fertilizers, animals and animal products, food products, metals, machinery and electrical equipment, and mineral products. Imports are mainly mineral products, base metals, cars, plastics, and machinery [Lithuanian Industry and Trade, 1996].

Laws have been passed that encourage foreign trade and invite capital investment. Income (profits or dividends) is freely expatriated from Lithuania. Investments from the West now predominate. In 1994, investment from the European Union accounted for 40 percent of registered foreign capital while only 8 percent came from the Commonwealth of Independent States. Three of the largest investors were from the U.S.A. Other major investments came from Holland, Sweden, Germany, Ireland, Great Britain, and Poland. Inflation has fallen from a high of 1,020 percent in 1992 to 35.7 percent in 1995, according to published reports based on IMF and World Bank reports [Foreign Trade in Lithuania, 1996].

The average hourly wage in Lithuania is about $1.50 which compares with $27 in Germany and $14 in the U.S.A. Workers in Lithuania are "quick learners and are highly qualified and motivated," according to Philip Atkinson, Managing Director of Philip Morris Letuva. More than one-quarter of all workers have "a higher or university level education" which places Lithuania among the top nations in Central and Eastern Europe [People - Lithuania's Best Natural Resource, 1996].

With the appearance of capitalism and open markets, the Lithuanian business community is now struggling to learn how to operate under a free market system. The authors of this paper are and have been heavily involved in this process in the north-central region of Lithuania around Panevezys. The Management Training Center has been very active in offering courses in all facets of business, as practiced in the West, and in counseling and consulting with large and small business owners and managers.

A great deal of progress has been made in Lithuania, but there are many difficult years ahead before the system pays off with standards of living that Western nations now consider to be the norm. It is a truly a difficult task to try and catch up with countries that have practiced capitalism for hundreds of years, but there are no known shortcuts. If the most important problems can be identified and addressed, however, a faster and smoother transition may be possible in Lithuania and in other nations that find themselves in similar predicaments. This is the central focus of the present paper. Major impediments in changing to capitalism are discussed in the following sections. It should be noted that these viewpoints are based on limited available data and largely on personal observation by the authors.
 

1. PSYCHOLOGICAL MIND SET
 

The typical Lithuanian citizen only understands democracy and capitalism as passed along by older family members or close friends. During Soviet times, the focus was on survival and preservation of a culture. Personal relationships and bribery of Russians (usually with food, since the Russians were usually underfed) were the key. It was in the best interests of everyone to go along with the party line. There were great risks in "rocking the boat" or speaking out on matters of concern. It was foolish to trust any outsider or openly embrace ideas that were not a part of Soviet socialism.

For many years, Lithuanians were not open to the outside world or to outsiders. This thinking is still somewhat present among the Lithuanian people. It is one thing to have freedom and another to feel free or act free. It would be easy to misinterpret an absence of smiling faces on the streets. Visitors to Lithuania should realize that this is not because the people are unhappy or discontent. The reason is that they have been conditioned to be suspicious of outsiders and new thinking. Smiling faces and an openness to new ideas will only come after some degree of trust has been established.

Personal relationships remain very important in all transactions. Visiting speakers at the Management Training Center are advised to take time to establish trust and rapport with their audiences before getting into detailed subject matter. The audience needs to know about each speaker. They are typically most interested in one's personal background and motivation for being in Lithuania before concentrating on other things. The audience also likes speakers to tie-down business ideas with first hand examples and real-world case histories, even photographs, showing how businesspeople behave and think in a capitalist society.

The conditioning that has taken place over the last 50 years among the Lithuanian people creates barriers to communication unless outsiders understand how the people think. If this potential problem is addressed by visitors, Lithuanians are quite receptive to modern business ideas.
 

2. CAPITALISM NOT FULLY UNDERSTOOD
 

The ideals of capitalism are seen primarily from a Nordic perspective not those from Western Europe or the U.S.A. There seems to be a great desire to depend on the government for a leading role in business. When discussing free markets based on the U.S. model, Lithuanian businesspeople are sometimes frustrated by the tremendous number of new ideas and business practices that must be absorbed to understand capitalism. This frustration was evident in comments made by a Catholic priest when one visiting consultant talked with him about using marketing to build the size of his congregation. He said "I just cannot seem to grasp all of these new ideas . . . I was brought up a socialist."

The reader should not misunderstand these comments. While the Lithuanian people are very capable and highly motivated, they frequently lack the confidence, planning skills, and leadership skills necessary to think like an entrepreneur. One frequent comment made by Western visitors and speakers at the Management Training Center is that "we take our system for granted," meaning that standard business practices seem basic and are easier to learn when people grow up under capitalism. Outside speakers must remember that learning begins with fundamentals. This can be illustrated with the common marketing concept of business success through "customer orientation." Under socialism this idea was not necessary and was not used. This idea is still hard for Lithuanians to grasp. An effective trainer should preface all concepts with basics then build on these basics with additional material as understanding takes place. Again, actual examples and cases have proven to be very effective in gaining believability and in showing how free markets and capitalism work.
 

3. FOREIGN LANGUAGE DIFFICULTIES
 

Lithuanian people fundamentally speak two languages, Lithuanian and Russian. Very few Lithuanians speak Western languages such as English, German or French. This problem has been recognized and the Lithuanian government has requested assistance from several sources, including college language programs, volunteers, USAID and the United States Peace Corps (Peace Corps, p. 2).

This situation will slowly change as younger students take these languages in school. At this time, however, visiting speakers and tourists face a significant problem in basic communications with local people. Without a translator, it is extremely difficult to check into a hotel, order food in restaurants, and conduct any real business deals.

Although skilled translators are available to visiting speakers at the Management Training Center, it is challenging to make presentations and to conduct classes. The art of translating is not an exact science and sometimes ideas are incorrectly or vaguely interpreted through translation. There are times when two or more translators are present and disagreement arises regarding the meaning of some words or phrases. Further, no direct translation exists for some words or ideas. Besides all of this, the classes are slowed by 20 to 40 percent because of the translation.

Lastly, it should be mentioned that almost all of the literature and books on capitalism and modern business practice are in Western languages. Lithuanians really do not have access to this material unless it is painfully translated to their language.
 

4. LACK OF STATISTICAL DATA
 

Under Soviet leadership, Lithuania became a U.S.S.R. republic and subsequently lost its identity as an independent state. In the conversion to independence and capitalism, it has been necessary to set objectives and develop strategies without adequate data on the economy. This task has been and continues to be a formidable problem for the Lithuanian government.

As noted earlier, the data that is available is often nothing more than estimates, undocumented, or is completely incorrect. Little was known in the beginning about the costs of government, national output, labor productivity, consumer demand, and human resources. To illustrate this deficiency, Lithuanian statisticians were outraged in July of 1996 when the United Nations, normally one of the best sources of world information, issued a report on the social and economic growth of the country. The published information was inaccurate and clearly out of date (Elta, July 16, 1996). Further, it was learned (in mid-January of 1997) that statistics on wages by employment sector would no longer be made public by the government. There is speculation about why this sudden announcement was made. It cannot even be verified that the data is being collected. Some blame political factions, and others think that the government is downplaying the rapid wage increases.

Although the situation in Lithuania is changing, there is current difficulty in making comparisons and understanding true needs. This data deficiency hinders potential investors, Western assistance agencies, and academic researchers. Developing creditable information sources and research standards that yield usable data for comparison to other nations is no simple task and will take time. In the meantime, policy makers, investors, and researchers should use as many data sources as possible and carefully screen available information. It would be wise to confirm major data needs with fact-finding missions and on-site observation. Sources of information and methods used to gather data should be carefully considered before making major decisions.
 

5. SHORT TERM POLITICAL AND ECONOMIC UNCERTAINTIES
 

The new Lithuanian state is an independent democratic republic. The foundations of the political and social system are enforced by the Constitution adopted on October 25, 1992. During the elections that took place in October of 1996, 137 deputies were elected to the Seimas of the Republic of Lithuania.

Although understanding is difficult for outsiders, most Lithuanians seem clearly to favor independence and capitalism. In early 1996, however, the business community privately expressed concern that many of the old socialist leaders had been initially reelected by the voters to manage the country following independence. This did create an uneasiness in the minds of businesspeople. Investors and Western nations also viewed the situation with some anxiety or concern. In subsequent elections held in October of 1996, conservatives were elected to a majority of the seats in Parliament, thus easing many internal political fears.

Another political issue is the taxation and licensing system adopted by political leaders. Taxation is high and climbing and this places a burden on the economy and discourages new business development. Tax payments must be made by a cumbersome bank transfer system that may take several days, since checking is not generally available.

Minimum wages were increased recently to 300 litas ($75 U.S.) per month. One private source reports that a family of four in Panevezys needs 2000 litas ($500 U.S.) per month to live comfortably. Wages are usually quoted as net "in-hand" by employees. In spite of legal intentions, many payments are made under the counter, including payments to employees for supplementary wages. About half of gross wages end up in employees pockets. Employers must pay a 30 percent social security tax on top of wages.

Following "the change," many citizens had unrealistic hope that capitalism and free markets would produce spectacular results quickly. They dreamed of soon living like the nations in Western Europe and in the United States. The speed at which changes have occurred, however, has been disappointing for citizens in all of the newly independent Central and Eastern nations. News sources have reported that it took Poland almost seven years to reach the same levels of output and consumption that were present following the break with the Soviet Union.

About the best that outsiders can do is not to take sides on internal politics and to reassure participants that capitalism will produce higher standards of living in the years ahead.
 

6. THE IMAGE OF LITHUANIA AMONG WESTERN NATIONS
 

Very few Americans know anything at all about Lithuania. Many Europeans only seem to know that Lithuania is in the Baltic area. Citizens in Scandinavia are more aware of Lithuania, but do not know much beyond that. It is quite disappointing when Lithuanians visit other countries and realize that their image is weak or nonexistent among most Western nations. Upon closer examination, one can understand the reasons for this unintentional oversight. Lithuania almost lost its national identity after it was occupied by the Soviets in 1940 and later incorporated into the U.S.S.R. Maps still in use today show Lithuania to be a part of the Soviet Union. Further, few outsiders had reason to travel in Lithuania before 1990. Since then it has not developed a viable tourist industry.

Lithuania has many strengths, from a business standpoint, but these have not really been promoted in the West. This is an area that needs further attention and coordination by the current government. Universities and foreign assistance programs should also help the business community learn to aggressively pursue customers and potential investors in other nations. Lithuania must develop an image that is favorable to outside investment and to the tourist industry if it wants to share in the prosperity of the West.
 

7. THE BANKING SYSTEM AND AVAILABLE CAPITAL
 

From the data presented earlier, it was shown that laws have been passed that invite foreign investment. Some private investment is flowing in from other nations. However, the banking system is struggling to become established and stable so that needs of Lithuanian consumers and the business community can be served.

There was a major banking crisis at the end of 1995. It caused 12 banks to go into bankruptcy and disrupted the entire credit system. This crisis led to the resignation of the prime minister and contributed to the defeat of the previous government. Frozen bank accounts hurt many individuals and businesses, and caused a drop in capital and consumer spending. Private sources report that no public or private bank is presently safe in a financial sense. Due to the high risks and limited investment possibilities, there is a general flight of big money to western nations. Foreign banks are not allowed, though this could help stabilize the system.

The average monthly income per family member is between $112 and $130. Little is left for savings and this creates problems for businesses that need to borrow capital for expansion and job creation. This has led to a capital shortage among consumers and in government accounts. Many local businesspeople report that they are not able to get loans, for one reason or another. And, when funds are available, interest rates are very high. Interest rates on working capital loans are still around 22-25 percent. Consumers also report great difficulty in getting loans for the purchase of homes or farms. This situation has a detrimental impact on the building industry and on jobs and should be addressed.

On the governmental accounting side, two international loans have recently been obtained. The proceeds will be distributed to the banking, energy, agriculture, and social care sectors of the economy (Elta, September 29, 1996).
 

8. LITHUANIA'S INFRASTRUCTURE
 

Lithuania's infrastructure is fairly good, according to some, compared with other former Soviet republics. Government sources, nevertheless, report that the infrastructure is below standards among Western European nations. The country is strategically located with an ice-free port in the city of Klaipeda on the Baltic Sea. There are major railway and highway systems that connect Lithuania to Eastern Europe, Belarus, Russia, and the Ukraine.

One problem with the infrastructure is the poor condition of some secondary roadways that are in need of repair. There are plans for repairing roadbeds, water systems and bridges (Elta, June 12, 1996). Projects are also being discussed for development of seaports and the reconstruction of railways in Lithuania. However, construction projects such as these require millions of dollars in loans that must be obtained from European or world banks (Elta, June 12, 1996).

On the positive side, funding was recently received for a project aimed at the construction and maintenance of four gas mains that will cover 180 kilometers in length. Also, four foreign banks have approved loans to build an international highway through the Baltic states, and should be completed by the year 2000 (Elta, September 26, 1996).
 

9. LEGAL ENVIRONMENT AND CRIME
 

There are two types of law enforcement: economic police and regular police for criminal and traffic violations. Major problems exist in the economic area. There is no well thought-out plan for developing a good legal code for business. Laws have been passed in reaction to crisis, not in response to a plan. Laws have been passed haphazardly with some laws conflicting with each other. Western advisors have had a difficult time trying to establish legal order that would facilitate trade. Most persons continue to be ignorant of western contract law and routinely enter into bad contracts with western organizations.

Criminal laws are better organized, but problems are common. The reported occurrence of crimes in Lithuania is greater than Latvia and Estonia and continues to grow. Crimes committed in the first half of 1996 increased 5.3 percent over the same time period in the previous year. Robberies and smuggling cases have increased by more than 29 percent (Elta, July 15, September 27, 1996). Organized crime is a serious problem for Lithuania. Its location between Russia and the West makes it convenient for smugglers. There are reports that organized crime has become widespread during the past year. A weak criminal justice system is partially to blame, and many social and economic problems exist. The Mafia continues to grow stronger under these conditions. Facts are not available on corruption and tax evasion (Elta, July 15, 1996).

The banking system in Lithuania has also been affected by organized crime. The theft of money by corrupt bank owners has led to many cases of bankruptcy. The crimes remain undisclosed and the perpetrators have yet to be charged (Elta, August 29, 1996).

Efforts to address crime problems were encouraged by Prime Minister Stankevicius in early 1996 and continues under the new Prime Minister, Gediminas Vagnorius. A commission was formed in April of 1996 to investigate problems with smuggling and corruption. Within six-weeks significant decreases in smuggling oil, liquor, and cigarettes were noted. Other actions were being taken to investigate crimes among border and customs police who were suspected of taking bribes (Elta, June 6, 1996).
 

10. DISECONOMIES OF SCALE IN PRODUCTION
 

Lithuania is a small country that is approximately the size of the state of Georgia in the U.S.A. In their struggle to become independent, they have been hampered by the dissolution of their former trade and supply systems with the Soviets. The entire production was integrated into the Soviet system. The types and quality of products and the scale of production were geared toward a different environment. The challenge is not simply shifting production and sales from east to west. It is a matter of acquiring and adjusting to completely new markets. This has resulted in the obsolescence of many manufacturing plants.

New buyers for Lithuanian products must now be found. Meanwhile, demand is low and this requires charging higher prices to cover total costs. Higher prices, of course, make it more difficult get new accounts and to establish new trading partners. Until the time when acceptable products are developed and demand for these goods is stimulated, the nation will continue to experience diseconomies of scale. This current situation results in underemployment and a shortfall of taxes required to maintain services needed by Lithuanian citizens. Longer production runs are needed to bring down costs of Lithuanian goods.
 

Ten problem areas were identified and discussed. The first is the "socialist mind-set." It deals with the idea that individual businesspeople in the past were not encouraged to think for themselves or to try new ideas. Passive behavior must be replaced with an entrepreneurial spirit, and fear must be replaced with self-reliance. Consumers must expect, even demand, better products and services. They should reward those who provide improved products and services with their patronage.

Adam Smith's "Enlightened Self-interest Concept" is the "backbone" of capitalism and should be taught in schools, accepted by businesspeople, and practiced in daily activities. The concept that competition is good for everyone must be embraced and anxiety about "rocking the boat" put aside. Entrepreneurs must now be creative in thinking of ways to please the consumer.

Western languages (ie. English, German, and French) should be required in the elementary grades. Businesspeople need to learn these languages if they want to understand Western business methods and develop Western business contacts. The authors have further noted a trend over the past 20 years toward English as the primary language of business, even among European and Scandinavian nations.

Statistical data available on Lithuania is often incorrect or out of date. This deficiency creates problems for potential investors, Western assistance agencies, and academic researchers. Although the situation is changing, there are concerns in making comparisons and understanding true needs. Developing creditable data sources and research standards is no simple task but should be given top priority.

Many of the old socialist leaders were initially retained by the voters following the achievement of independence and this created an uneasiness in the minds of businesspeople. Investors and Western nations also viewed the situation with some anxiety or concern. Lithuanians now must spread the word that they have seated new leaders in the election of October, 1996, and are on a solid conservative course. Outsiders can be more patient while reassuring Lithuanians that capitalism will produce higher standards of living in the years ahead.

Lithuania's image is weak or nonexistent among most Western nations. A strong new public relations program and efforts to build the tourism industry can help over time in this regard. Also, confidence in the banking system must be established so that consumers are not afraid to invest their savings. Citizens can then be encouraged to save more so that funds are available for business and consumer loans. Further, the criminal justice system must be strengthened so that the crime problems do not get further out of hand. Organized crime must also be contained.

Lithuanian production needs to become more specialized and centered on national strengths and resources. When larger demand is created through efficient production and sound marketing, prices will fall and this will further stimulate demand. This should result in higher employment and tax revenue to build and maintain services needed by Lithuanian citizens.
 

danute@ktl.mii.lt, The Internet, (http://neris.mii.li/homepage/land.htm, 1997) pp. 1-3.

danute@ktl.mii.lt, The Internet, (http://neris.mii.lt/economy/ economy.htm, 1996) pp. 1-5.

Elta, Lithuanian State News Agency, The Internet, (http://elta.elta.lt, June 6, 1996).

Elta, Lithuanian State News Agency, The Internet, (http://elta.elta.lt, June 12, 1996).

Elta, Lithuanian State News Agency, The Internet, (http://elta.elta.lt, July 15, 1996).

Elta, Lithuanian State News Agency, The Internet, (http://elta.elta.lt, July 16, 1996).

Elta, Lithuanian State News Agency, The Internet, (http://elta.elta.lt, August 29, 1996).

Elta, Lithuanian State News Agency, The Internet, (http://elta.elta.lt, September 26, 1996).

Elta, Lithuanian State News Agency, The Internet, (http://elta.elta.lt, September 27, 1996).

"Foreign Trade in Lithuania," Made in Lithuania, January 1996, pp. 9-14.

Hill, C. L. W., International Business (Homewood, IL: Irwin, 1994) pp. 32-63.

"Lithuanian Industry and Trade," and "People - Lithuania's Best Natural Resource," Made inLithuania, February 1996, pp. 4-12, and p. 42.

Peace Corps, The Internet, (http://www.peacecorps.gov/www/io/ecam/ Lithuania.html, 1996) pp. 1-2.