The Second Coming of the Baltic Tiger

There are many parallels with Israel, and much the nations can teach each other, says Lithuanian Prime Minister Andrius Kubilius

Dafna Maor
Asher Schechter
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It's his favorite book, exclaims Andrius Kubilius: Start-Up Nation, the story of Israel's development as a technology power by Dan Senor and Saul Singer. The book describes things he, as the nation's prime minister, believes Lithuania should emulate, Kubilius explains. "Our agenda for the future is to be Startup Nation No. 2," he says, laughing.

Actually, he isn't joking. Under his stewardship the leaders of Lithuania have been working on a 20-year strategic plan which involves leveraging the Baltic nation's advanced population - more than 40% have university education, the president says - into becoming an information-technology powerhouse. Lithuania and Israel have elements in common. It's a small country with 3.5 million residents (Israel has 7 million ). It isn't known for its advanced high-tech industry, though Kubilius, 54, means for that to change, he told TheMarker during his visit to Israel over the New Year.

Basketball fans know of Lithuania thanks to its excellent team. Jews know of Lithuania after centuries of shared history: The city of Vilna had even been known as "Jerusalem of Lithuania," and birthed the Jewish luminary Elijah ben Shlomo Zalman, known as the Vilna Gaon.

"For the last 600 years, until the Second World War, we had a very strong and very important Jewish community," he says. Those centuries of common history ended with the slaughter of 94% of Lithuania's Jewish population in the Holocaust.

"Some Lithuanians took part in that," Kubilius admits. But Lithuania today looks with pride on what the Jews of Lithuania - the so-called "Litvaks" - achieved, both in the State of Israel and globally, he says. While in Israel he met with President Shimon Peres, "then with Prime Minister Benjamin Netanyahu, then with the speaker of the Knesset Mr. Ruby Rivlin, then with opposition leader Tzipi Livni, then we met with Stanley Fischer [the governor of the Bank of Israel], and then we met with Shraga Brosh, the president of the Manufacturers Association. It appears that all are Litvaks!" he says, his punch-line being: That is a very good basis for cooperation.

The global economic crisis slammed the Baltics hard. In 2009 Lithuania's GDP contracted by a fierce 15%. Yet despite severe measures to combat the catastrophe, the nation did not succumb to unrest. People did not take to the streets. That is because Kubilius, who has been prime minister since 2008, and his government took aggressive action - but managed to get the unions on board with the program, which involved painful spending cuts, including to pensions.

"We can clearly declare that the major problems of the crisis are behind us," he says. The Baltics, including Latvia and Estonia, got hammered in part because they couldn't devalue their currencies during the crisis: Ahead of joining the EU in 2004 the Lithuanian currency, the litas, was pegged to the euro.

He had already been expecting trouble from economic overheating before the crisis hit: Bubbles were discernible in construction and real estate, he explains. Well, the crisis took care of those. "We went into freefall without a parachute. Minus 15% is really tough. I remember the previous crisis with Russia - that was terrible, and the economy contracted 4%. Now it was minus 15%," he repeats.

But Lithuania made a clear choice: It didn't want help, it would save itself by its own means.

"We did it. We cut salaries. We cut pensions. My salary went down by 45%. I'm always saying how good my wife is that she's still keeping me," he laughs, and immediately sobers. "We asked the labor unions and representations to sign a national agreement for - the most painful part of austerity measures - cuts in the pension system."

And thus, after protracted negotiations, organized labor came on board and social stability was preserved.

Kubilius, 54, leads the conservative Social Democratic party. In the 1980s he'd been a member of Sajudis, a movement demanding dissociation from Russia and independence for Lithuania. He is serious of mien, but likes to joke. His second book is called "Why Basketball is More Fascinating than Politics in Lithuania." But when it comes to the country's future, he's deadly serious. His aim: to develop Lithuania as an innovative high-tech economy.

"We do not have natural resources," he says, nor does it have the industrial resources that some European nations have. What it's great at is service industries, says the prime minister, and it has the manpower: More than 40% of Lithuanians have higher education, which is double the European average, he says. Most speak foreign languages - English or, in the case of older people, Russian.

Lithuania has what to learn from Israel about developing a technology economy, Kubilius says, but it's starting from a position of already having among the most advanced commercial and Internet infrastructures in the world. "We have the highest fiber-optic density in Europe, the highest mobile communications penetration," he says. Lithuania has the densest network of public Internet access points, he adds.

Its goal? Much like Israel, it wants to attract multinationals, induce them to set up shop and invest, do their R&D in Lithuania. Last year it successfully wooed the likes of banking giant Barclays and Western Union, and Israel's own Teva Pharmaceutical Industries is there too, he adds. Having acquired the U.S. injectables company Sicor in 2005, Teva - through Sicor Biotech - is now the biggest biopharm manufacturer in Lithuania. Israel's achievement in the last 20 years, making it the "Start-Up Nation," was really to create a suitable environment for high-tech to develop, says the visitor: Venture capital funds and technology incubators sprang up to cultivate the startups.

This nurturing environment is one thing Israel could teach Lithuania, he says.

While Lithuania rebounded powerfully from the global economic crisis thanks to early and aggressive policy measures, including a 30% cut in government spending, unemployment is still a shattering 17.8%, the second-highest rate in Europe.

In 10 years' time, will people be talking about the Lithuanian tiger? That remains to be seen, but in the meantime the prime minister is working to make that happen, through reforms, through reshaping the business environment to be more inviting, and "we are moving ahead with abolishing red tape for businesses."

Anyway, prediction is for fools. "We had a very nice chat with Stanley Fischer and we asked for his predictions. He said don't put your investment on my predictions," Kubilius laughs.

During the conversation, Kubilius stresses his understanding of Israel's situation, and when asked, delicately touches on its sense of isolation. His aim is to attract more Israeli business investment and trade, but he also has words of advice.

For one thing, because of Lithuania's history, its people can understand what it means to live in a country facing "big threats to its national security," he says. "So from that point of view we understand what it means to live in the State of Israel. Americans might not understand what it means when missiles and rockets are coming. Scandinavia hasn't experienced military action, war" on its own turf for 300 years, he says. "But we understand."

Shortly - which means in the second half of 2013 - Lithuania will be assuming the presidency of the European Union, Kubilius says. It might suggest some ideas for Israel to be viewed more favorably, how to better present its reality in Europe. The EU tends to view countries such as Israel and, say, Morocco, the same, which in his opinion is a mistake: These countries are very different, and Israel and the EU could develop a special relationship. Israel should take more initiatives to advance its relations with the EU, he urges.

For his part, he relates, when asked by students at the Herzliya Interdisciplinary Center about Israel possibly joining the European Union, he said he'd vote for it on the spot.