Social Responsibility of Global Governance Institutions:

The Policy Approach of the European Union and the World Bank to Development Problems in Transitional Economies


By Algirdas Petkevicius, International Policy Fellow of the Open Society Institute


This publication was sponsored by the International Policy Fellowship Program of the Open Society Institute in Budapest, Hungary


© Algirdas Petkevicius, all rights reserved


Disclaimer: This publication is to be viewed as a strictly provisional draft. No part of the paper should be viewed as final. No part should be cited, referred to, or otherwise used until the final version is prepared.


Table of Content:


1. Preface

1.1. Objective and Key Issues

1.2. The Perception of Social Responsibility

1.3. Theoretical Framework

1.4. Empirical Coverage

1.5. Sequence of the Paper

1.6. Auditorium and Political Significance of the Paper


2. Social Responsibility in Governmental Action: Theoretical Foundations

2.1. Theories of Institutional Behavior and How They Will Be Applied to This Research

2.2. Are International Organizations Different? – Remarks on Social Responsibility in Global Governance Institutions

2.3. Conclusions of part 2.


3. Social Responsibility in Governmental Action: Practical Application of Theoretical Presumptions

3.1. Social Responsibility in Governmental Action – the Case of Regional Development

3.1.1. What is the EU regional policy

3.1.2. The Decision

3.1.3. Why a Policy Failure – a Theoretical Justification from the Regional Development Theories and EU structural funds’ rules

3.1.4. The Actors and Outcomes

3.1.5. The Analytical Conclusion

3.2. Social Responsibility in Governmental Action – the Other Selected Cases

3.2.1. What are the Policy Areas and How They Are Influenced

3.2.2. The Decisions

3.2.3. The Assessment of the EU Influence

3.2.4. The Actors and Outcomes

3.2.5. The Analytical Conclusion

3.3. Social Responsibility in Governmental Action – the World Bank

3.3.1. The Assessment of the World Bank’s Influence on the National Policy Agenda

3.3.2. The Actors and Outcomes

3.3.3. The Analytical Conclusion

3.4. Conclusions of section 3.


4. Policy Recommendations




1. Preface


1.1. Objective and Key Issues


The objective of this paper is to describe and assess the role of the European Union and the World Bank in determining the outcomes of the national economic policy in Lithuania and other selected East European countries. The importance of this topic in the contemporary period of political and economic reforms in this region is apparent, as the international organizations frequently play a very far-reaching role in determining national policy outcomes. The questions why the international organizations sometimes impose unsound policy demands and how the national authorities of the transitional countries may overturn the unwanted results of the policies recommended by the international organizations remain open, along with the question how the international organizations’ policies and the national responses to these policies are likely to change after Lithuania accedes the European Union. The topic is also particularly interesting at this time, when Lithuania and other East European accession countries are receiving unprecedented amounts of material support from the European Union. Whether the national government is free to use these resources, what is the role of the European Commission in designing the allocation strategies and how a decision making on these funds is organized are very interesting questions asked by the decision makers themselves, the societal organizations, the policy analysts, and the society in general. Indeed, only by understanding what causes or may cause a potential policy failure in implementing these aid programmes may we design viable recommendations on how to overcome this policy failure.


Several aspects of the issue are analysed in this paper, namely: i) whether the selected international organizations’ policies with respect to Lithuania and other East European countries always produce positive economic results, or they may also result in negative consequences; ii) if negative consequences are likely - why the selected international organizations are not able to formulate more sound policies and why the national governments are not able to resist the policy advice that is likely to cause such negative consequences. The presumption of the paper is that the role of the international organizations in shaping the national policies of the transitional countries is sometimes biased; it may be prejudiced by a lack of expertise within an international organization, a cumbersome bureaucratic procedure within an international organization, that makes an organization’s decision economically unsound, or the defense of some member states’ interests at the cost of the others. These and other reasons may be capable of distorting an international organization’s policy performance and, providing that a recipient of policy demands is not able to refute the unsound recommendation, cause an economic damage.


However, the paper is not specifically focused on an economic damage as a policy outcome (this would be an exceptional case of the negative influence of international institutions), but primarily on the decreased efficiency and rationale of the economic policy as an outcome of the international organization’s role in the national policy making. By invoking concrete empirical examples from Lithuania and other countries of Eastern Europe, the paper is intended to demonstrate that the outcome of some international organizations’ policy advice or aid packages could have been better if the national authorities did not follow these organizations’ recommendations or demands on which policies to implement or how to use the allocated funds.  


While the paper includes empirical examples of the negative influence of the selected international organizations, it is not intended to assert that the existence of these organizations is by itself negative, or that all aid or actions taken by these organizations should be viewed as negative. It is very important to realize that in many cases the existence of the policy pressures from the international organizations enabled the national governments to overcome their own inefficient policy approaches, to speed up progressive reforms. This positive impact of the European Union and the World Bank is widely acknowledged and appreciated in the paper. At the same time, however, the paper is aimed at analyzing the selected cases of both positive and negative influence, finding the causes of such an influence, and recommending the policy solutions for the national governments on how to overcome the temptation to unconditionally submit to the international organizations’ demands in cases where there may be a lot of space for negotiation. 


Thus the main issue of the paper is the social responsibility of the European Union and the World Bank, as reflected in their policy advice or in their aid or lending policy  (official or unofficial), as well as the response of the national governments to the international organizations’ demands.


It should, however, be mentioned that the primary objective of this paper is to present the empirical data and make conclusions on the influence of the selected international organizations on the domestic policy process in the transitional economies, primarily in Lithuania. The paper is not intended to contribute to the development of the institutional behavior theories.


1.2. The Perception of Social Responsibility


Generally “social responsibility” of global governance institutions is understood as the social consequences of these institutions’ lending and aid policies for the poor layers of the population. Indeed, there is a lot of literature on the impact of the IMF, the World Bank, sometimes – the WTO, on widening the inequalities. Sometimes the impact of the IMF’s or World Bank’s lending conditions is recognized to be directly adverse to the interests of those most in need. However, this paper is focused on the transitional countries of Eastern Europe, in which “social responsibility” cannot be understood in the same way. As the level of living in these countries is higher and the national bureaucracies more capable, the impact of the international organizations’ policies can hardly be addressed in terms of inequalities, but rather more generally – in terms of the overall policy efficiency. Of course, this does not mean that inequalities do not exist; this means that they are acceptable to the societies, in which the middle class either already predominates or is likely to start predominating in the foreseeable future.   


1.3. Theoretical Framework


The issue of the efficiency of policy making at both international and national level may be analyzed from several theoretical perspectives. However, the practical usage of this paper consists in its attempt to explain rather the behaviors of single civil servants on both sides rather than the behavior of the organization itself. The question why the European Union tries to negotiate for better conditions to be applied to the consultancy firms based in the EU or requires to close old nuclear power plants hardly require a specific explanation, neither does the World Bank’s tendency to support the interests of the United States – its largest donor.  Quite a lot of literature already exists on these topics. The much more interesting question is why and how low and medium ranked officials within the international organizations are able to almost dictate policy solutions in the framework of the granted loans or aid packages and why the national civil servants tend to submit to these demands, as well as under which circumstances the influence of the international organizations’ employees may increase or decrease. These are the cases when a national administration could well be able to negotiate better policy options, contrary to the cases when the negotiation is hardly possible.[1]


Thus the main focus of this research tends to emphasize the behavior of a stakeholder in the policy making process as a factor predetermining a policy outcome. The sum of the influences of various stakeholders produces a certain result which may be either to submit to the international organization’s demand or to negotiate (sometimes to reject) these demands. Likewise, within an international organization’s structure, the sum of the influences of various stakeholders causes one or another position to be recommended to a member state. Thus a suitable framework of explanation of policy outcomes is modern institutional economics which asserts the importance of the individual actions in the policy making process and the imperfect rationality of the decision makers, hampered by high transaction costs. The identification of the decision maker’s or stakeholder’s position, and the analysis and reasons of such a position is the key metholdological objective of the paper. The paper is intended to show that the chosen theoretical framework is suitable for the purposes of this research, but it is not intended to check the validity of any alternative theoretical explanation.


For the purposes of the analysis, the stakeholders shall be divided into several categories: the civil servants directly in charge of the policy in question, the senior decision makers within the ministries, the politicians, the interest groups, the media, the society, and the representatives of the international organizations. The position of each of these actors in seeking one or another policy outcome shall be outlined and compared with the international organization’s recommendation or demand. The interaction of various influences and the inevitability of transaction costs limiting the availability of information for decision makers shall be considered the key factors determining the national policy outcome. Likewise, the policy recommendations shall be related to balancing the influences and the methodologies for more efficient communication strategies able to diminish the transaction costs in decision making.


1.4. Empirical Coverage


The empirical cases illustrating the success or failure of the World Bank’s or EU’s policy in its transactions with the transitional countries of Eastern Europe shall be confined to the policies of the allocation of the European Union structural funds - in case of the EU, and to the conditionalities imposed by the World Bank on its loans – in case of the World Bank. Most of the empirical evidence shall be based on the Lithuanian experience, but in order to show the existence of the similar problems in other East European countries – a limited number of cases shall be based on the experience of the countries other than Lithuania.


While the major empirical coverage shall be related to the above mentioned fields, the illustration of the influence of the selected international organizations on the member states policies shall require a wider coverage. In order to present a more comprehensive picture of how the employees of the international organizations may press for their solutions and how various domestic actors typically respond to these demands, the empirical cases shall also be taken from such fields as the financial control methodology, public administration, agricultural policy.


1.5. Sequence of the Paper


The paper is divided into several sections.


Section 2 is focused on the theoretical foundations of the problems to be analyzed in this research. The writings on the policy efficiency within the governmental organization and on its social responsibility shall be quoted, the theoretical framework of the analysis – the Modern Institutional Economics – shall be justified.


Section 3 shall be focused on the presentation of the empirical cases of the international organizations’ influence on the national policy making and on the responses of various domestic policy making actors to this influence. The selected cases shall demonstrate that the unjustified demands of the international organizations may be frequently overcome, but the reasons of their acceptance rest with the lack of information by the decision makers, the undue influence of various interest groups, and the vulnerability of civil servants directly in charge of the influenced policy area. 


Section 4 shall be dedicated to the conclusions and policy recommendations.


1.6. Auditorium and Political Significance of the Paper


The paper is designed for the governmental decision makers in the Central and Eastern European region. It should also be interesting to the employees of the European Union and the World Bank, as well as to the people interested in issues of policy making, public administration, regional development, and the EU structural funds.


2. Social Responsibility in Governmental Action: Theoretical Foundations


2.1. Theories of Institutional Behavior and How They Will be Applied to this Research


[this part shall probably need to be significantly expanded with the explanation of why other theories are less adequate; this is open for discussion]


There is a lot of literature on the issue of the rationality of decision – making. To mention just a few findings, Kickert, Klijn and Koppenjan distinguish three steering models: conventional, multi-actor, and network based. According to them, the conventional model focuses on the relation between the agent and objects of steering and indicates that failure is a result of ineffective steering instruments, resistance from implementing bodies, lack of information, lack of control, incorrect assumptions on the causal relationships between means and ends. Thus this model suggests that policy may be improved by clarifying policy objectives, reducing the number of participants in decision making, increased monitoring and control. The multi actor model suggests that the failure may arise when the government does not provide sufficient information for local actors, both private and public. Thus the major improvement, which can be made, is more local discretion. The model is, however, criticized for inconsistency – while local actors are expected to be more autonomous, they are supposed to get more attention from the central government. Finally, the network model is based on the networks of actors, none of which possesses the right to determine policy outcome. Therefore, interaction is necessary, and a policy failure is believed to originate from the lack of collective action.[2]  


The complete autonomy of the state is not seen as a good solution and pressures from the interest groups are recognized to be of great significance in determining policy goals, if the network approach is taken as the basis. However, while in case of complete government’s autonomy the major reason of policy failure may be the lack of qualifications, information, or too cumbersome procedures, in case of ‘embedded autonomy’ (network based approach), one of the key issues (besides others) becomes whether the civil servants are able to resist tendencies of self-interest.[3] Evans, referring to Weber, says that the state is only able to regulate economy effectively if the bureaucrats see corporate (societal) goals as best matching their personal self-interest.[4] This match can be achieved, according to Evans, by introducing competitive examinations and the system of promotion based on merit, creation of the feeling of work prestige. In some cases, as Evans suggests, islands of efficiency with all these features may be created to manage vitally important sectors of economy, if it appears to be impossible to follow such principles in the entire civil service.


However, even if there are all the mentioned features, does it mean that the civil servants shall be able to depart from their self-interest? As Moe suggests, this will still not happen. According to him, “…democratic governance gives rise to two major forces that cause the structure of public bureaucracy to depart from technical rationality. Firstly, those currently in a position to exercise public authority often face uncertainty about their own grip on political power in the years ahead, and this prompts them to form structures that insulate their achievement from politics. Secondly, opponents also have a say in structural design and, to the degree they do, impose structures that subvert effective performance and enhance their own control”.[5] These and other factors still create instability, and the private sector’s role in defining policy objectives (or simply speaking – rent seeking behaviour of both civil servants, private consultants, interest groups, etc., may increase).


Moe thinks that all governmental actors are primarily concerned with their own problems and pursue their own interests. Politicians are interested in re-election and therefore try to get as much funds as possible for their districts, civil servants are interested in maintaining control over certain activities even if this is not an efficient approach, in order to maintain their jobs. Finally, there being little certainty about the future of public agencies, each civil servant and politician may be willing to ingratiate himself with the private structures, in order to get benefits after some problem occurs in his career. Issues of corruption and bribery should also be taken into consideration, especially when civil service work is badly paid.


Generally, however, if this approach is followed, not only the politicians and civil servants, but also the interest groups that have a stake in decision making are likely to promote self-interested approaches to policies, especially when material allocations are on the agenda. In this regard, policymaking may be regarded ‘a clash of personal interests’.


The Modern Institutional Economics also takes the point of view that an individual within a public organization is to seek his own interests. According to Furubotn and Richter, the modern institutional economics asserts methodological individualism and individual rationality. The modern institutional economics, according to the authors, presumes an entirely new role of individual decision makers. People are different and have different goals, objectives, rationale, ideas. Thus the organization per se is no longer perceived as the main focus of the analysis. Rather the views and behaviours of the individual actors give the raise to the phenomena being studied.


While the individual rationality is accepted as one of the determinants of the policy outcome, two trends may be distinguished – one taken by the traditional neoclassical view asserting perfect individual rationality and another taken by the modern institutional economics – imperfect individual rationality, presuming the incompleteness of the decision makers’ knowledge and information. The latter trend suggests that a transaction cost in the policy making process may be too high to make a decision maker “completely informed” and thus an individual often makes his choice without a sufficient rationality.   


What do we gain or lose by applying the framework of a personal interest of the decision makers and the transaction costs as a factor influencing a personal choice, rather than any alternative frameworks? Firstly, this paper is specifically intended to analyse the policy influence of international organizations that arises from the actions of single employees or their groups rather than the entire organizations. This does not mean that problems of social responsibility or policy dependency do not arise in inter-institutional or inter-governmental context. Indeed some of the cases, such as the EU demand to close nuclear power plants in the accession countries, or to accept certain specific provisions of the Europe Agreements influencing the trade policy make up an institutional and hardly a personal stance. These cases could not be analysed in terms of actors’ personal interests, because actors would be too many. These cases are also not suitable for the analysis because no valuable policy recommendations could emerge from their investigation – an accession country would be able to rebuff any attempts to demand unwanted policy solutions by building international alliances, consolidating the domestic policy agendas, but not by taking actions at the level of the domestic civil service. As a result, such cases represent a set of “ultimate truths”, i.e. that a stronger state can press on a weaker one, etc., without a lot of ways out. However, the phenomenon that is analysed in this paper is based on the international organization employee’s or unit’s and the national government’s, unit’s or civil servant’s dependency (interconnection). These cases illustrate how an international organization may exercise a due or undue influence on the domestic policy agenda on quite strategic economic issues by means of informal pressure, bu presenting personal rather than the institutional demands and views. As it is argued in this paper, such a sort of influence is great and the decisions that are at stake in such cases can well be negotiated – the failure to do so rests rather with the inefficiency in the domestic organization of the civil service, the lack of information by the decision makers, the misunderstanding of what is good or bad for the country, and ultimately – the interplay of interests of those who do or do not understand, do or do not want a certain policy solution. In this field, there is a lot of space for designing independent policy recommendations.


2.2. Are International Organizations Different? – Remarks on Social Responsibility in Global Governance Institutions


Whether the global governance institutions or the European Union are different from the lines of behavior characteristic of the national governments is a rather rhetoric question. An international organization is the same bureaucracy. Although we expect it to be more competent than the national authorities are (and this is often the case),  it is driven by the same factors as applied to an ordinary governmental organization.


The theoretical writings on the work of international organizations, such as the World Bank and the International Monetary Fund, generally have two prospects – the one of international relations, and the one related to their economic policies. There are also some (fewer) writings on the efficiency of these organizations’ internal structures. For the purposes of this research, it shall be useful to summarize the opinions of the scholars on what the objectives of the selected international organizations are, whether the policies of the global governance institutions are efficient, which problems exist in these institutions’ internal structures.[6]




Every global (or regional) governance institution has a set of objectives. The World Bank’s major objective is considered to be the promotion of investment in development, the International Monetary Fund’s – to deal with the problems of the balance of payments, to provide short-term loans and advice on the government’s macro economic policy[7], the European Union’s – to pursue a number of objectives stipulated in its founding treaties, including a significant range of the functions with an economic impact.


According to the World Bank, its major current objectives are:

To fight poverty with passion and professionalism for lasting results.

To help people help themselves and their environment by providing resources, sharing knowledge, building capacity, and forging partnerships in the public and private sectors.

To be an excellent institution able to attract, excite, and nurture diverse and committed staff with exceptional skills who know how to listen and learn.[8]

According to the International Monetary Fund, its purposes are:


To promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problems.

To facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy.

To promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation.

To assist in the establishment of a multilateral system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions which hamper the growth of world trade.

To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity.

In accordance with the above, to shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members.[9]


According to the European Union, its principal objectives are:

To establish European citizenship (Fundamental rights; Freedom of movement; Civil and political rights);

To ensure freedom, security and justice (Cooperation in the field of Justice and Home Affairs);

To promote economic and social progress (Single market; Euro, the common currency; Job creation; Regional development; Environmental protection);

To assert Europe's role in the world (Common foreign and security; The European Union in the world).[10]

These objectives are pursued by a variety of means, such as the establishment and coordination of policies, provision of aid, loans, expertise.


Policy Influence


Each of these policy instruments may and does become an instrument of these organizations’ influence on the domestic policy agendas of the member states. On the one side, the presence of such an influence does not contradict the logic of these organizations – they are supposed to help the weaker member states to introduce sound economic policies. On the other side, this influence may also cause undesired effects, such as the defense of the economic interests of some member states at the expense of the others, or the almost forcible pressure on a weaker member state to take one or another policy action that the organization thinks is necessary.


The danger of the international organization’s undue influence on the member states is elaborated in a number of writings. One of the cases concerns the World Bank’s policy based lending, i.e. the provision of loans on the condition that the borrowing country shall implement certain political objectives (reforms). According to Mosley, Harrigan and Toye, the policy based lending of the World Bank appeared in the 1980s and comprised three steps: i) the program (non-project) lending to provide support for the deficit in the balance of payments, as well as to facilitate imports; ii) a combination of the program lending with policy change; iii) broadening of loan conditions from sectoral / sub-sectoral to the national (macroeconomic) level.[11] Such a lending based on broad conditions encountered problems because of several reasons: i) the claims that the World Bank meddles into the loan recipients’ internal affairs; ii) the absence of mechanisms to control the implementation of the set conditions; iii) the frequent aspiration of the policy wing of the World Bank to impose as many conditions as possible, a lot of them being quite abstract, etc. Gilbert, Powell, and Vines argue that “The central problem with conditionality is that it results in time-inconsistency. Recipient governments may agree to ex-ante policy conditions if they see this as a means of attaching future loans or aid support. However, once the aid is disbursed these incentives are diminished”.[12] Besides that, the policy conditionalities also entail the problem of lending efficiency, i.e. the countries that have not been implementing policy reforms acquire better chances to receive funds while the countries that have progressed rapidly have a chance to be denied resources.


Both the World Bank and the International Monetary Fund widely apply policy conditionalities; the World Bank’s conditions may relate to the general reforms of public administration, including the economic sector, and the IMF’s conditions relate to the macro economic, financial, monetary policies. Both organizations face an increased criticism for alleged adherence to the financial/economic interests of the United States. A good example of such an adherence is considered to be the IMF’s stance towards the Republic of Korea and South Eastern Asia during the Asian crisis.  As Wade argues, the IMF’s solution of introducing more domestic austerity in order to restore the capacity to repay debts, as well as institutional reforms, including further financial liberalization,  greatly contributed to furthering the problems in South Korea and South-Eastern Asian countries. According to Wade, these countries rushed to capital liberalization without a serious institutional support and, as a result, the short-term portfolio investment boomed without any serious obstacles for capital repatriation. Not o wonder that when the international circumstances settled unfavorably, the a huge amount of short term investment began to run out of these countries, thereby causing serious problems. Wade argues that the IMF precluded the Republic of Korea from taking adequate measures; instead of the devaluation of the national currency, the establishment of the default on loans, and the imposition of restrictions on the repatriation of capital, the IMF required to further liberalize the conditions for capital repatriation and to keep the national currency as stable as possible. In addition, the IMF required to maintain high interest rates, to prevent state aid, to impose Western prudential limits.[13] Wade also refers to the comparative example of the US/IMF’s policies in case of the Mexican crisis in the 1980s and in case of the East/South East Asian crisis. While in the first case USD 50 billion were provided immediately and almost without conditions, in the second case a long list of conditionalities was imposed, including high interest rates, further liberalization of capital flows, closure of insolvent banks.[14] Paul Collier and Jan Gunning agree with Wade and argue that, in the case of the IMF, the evidence is overwhelming that sometimes its lending had adverse consequences for the poor, there were problems of wrong sequencing (especially the problem of pre-mature liberalization), and finally – the money for policy directs resources to misperforming countries.[15] By invoking these and other facts, Chandrasekhar suggests that “The evidence is overwhelming that, while challenging the economic sovereignty of these countries, the policies do not guarantee balance of payments adjustment; they do not promote growth; they contribute to environmental destruction; and they inevitably result in rising unemployment, increasing inequality and persistent poverty”.[16] The employees of the global governance institutions sometimes also recognize the possibility of the existence of various policy biases. As Joseph Stiglitz has acknowledged, “Agency problems arise at several levels. Not only may an institution not serve the general interest and weigh the welfare or perspectives of certain groups more than others, but the institution can actually become an interest group itself, concerned with maintaining its position and enhancing its power. This problem becomes particularly alarming when the power and prestige of an international organization is pitted against the weak position of a developing country”.[17]  


In the context of the transitional economies of Eastern Europe, the evidence of the positive or negative consequences of the IMF’s or World Bank’s activities is not that overwhelming. However, there are, too, similar problems related to the pre-mature liberalization and privatization. For example, Avery argues that in Hungary, the program of rapid privatization requested by the World Bank/IMF “has resulted in a massive transfer and reallocation of power”.[18] According to this author, the World Bank/IMF supported policy resulted in massive transfers of wealth to foreign multinationals and in 1991 “nine of the largest ten privatizations went to Western multinational corporations. Eighty five per cent of privatization proceeds came from foreign investors.”[19] Of course, this evidence is dubious, as the privatization benefiting national companies may also be accompanied by negative phenomena, such as corruption, lower income for the state, etc. The fair privatization that benefits an investor offering most favorable conditions, accompanied by a fair state regulation of investors’ activities is probably a preferable solution for a transitional economy. Nevertheless, the cases of failure are also abundant – the World Bank’s suggestions for the privatization of state owned large enterprises in the steal industry resulted in quite a significant policy failure and in the World Bank’s apologies.


In this context, there is much less literature on the policy influence of the European Union, probably because most of the member states have maintained active contacts between themselves, most of them were equally or almost equally wealthy. With the process of accession of 10 East European countries, some form of dictation by the EC employees came as well. However, there is, so far, quite little literature on the examples of such an influence. This paper is one of the attempts to shed more light on the role of the EC policies and single employees on the transitional countries’ policy agenda.


2.4. Conclusions of part 2.


In part 2, the theoretical framework of this publication was reviewed, and the role of the global governance institutions in the national policy making was briefly assessed. The key conclusions of this part are that: i) the chosen theoretical framework of analyzing personal interests of the decision making actors as a factor predetermining a policy outcome is an acceptable framework of the analysis; ii) there are a lot of examples of both positive and negative policy influence of the international organizations on the national policy agendas; iii) the policy impact of the European Union on the transitional countries of Eastern Europe exists, but it is under researched.


The conclusions of this chapter should not be understood as an attempt to assert that the international organizations should not exist or that they bring only negative or overwhelmingly negative consequences. It is rather an attempt to point out to the types of problems that may arise, so that a suitable analytical framework would be prepared for the following chapter.


3. Social Responsibility in Governmental Action: Practical Application of Theoretical Presumptions


3.1. Social Responsibility in Governmental Action – the Case of Regional Development[20]


In most cases, the discussion on decentralization of the process of development does not go further than the acknowledgement that regions should (or could) promote territorial competitiveness, have a voice in national investment allocation or that they should have increased fiscal powers or investment funds at their own disposition.[21] However, in Eastern Europe, there has recently[22] been a wave of attempts to create legal frameworks, which could have led to the allocation of very significant, if not all[23] amounts of central government investment funds for regional policy - possibly, also with a strong involvement of regional governments in investment management. Such a scheme was advocated by the European Commission’s DG ‘Enlargement’ and attempted to implement in late 1990s, in the framework of accession countries’ preparations for the EU Structural Funds. While this toughest form of the regionalized approach failed in late 2000 – early 2001 (in those countries, in which it was adopted), the key issue for the analysts remains how could such a concept appear at all and how could it be theoretically justified. This question is intriguing, since such a degree of decentralization in investment allocation and management finds little, if any support either in general economic theory or in regional development theory. Neither does it find any support in the policies of either EU institutions or the EU member states, or even in the planning traditions of the very accession countries.


The decision to carry out the Lithuania’s preparations for the EU structural funds on the regional (rather than national) basis, as well as the decision to allocate the 14,000,000 euro of the EU PHARE 2000 “Economic and Social Cohesion” funds to the four poorest regions of Lithuania can be considered a major policy failure of both the European Commission services that offered such an unsound approach and strictly enforced it[24], the specific civil servants within the European Commission services who advocated this approach, and the Lithuanian government that accepted this approach.[25]


In the sub-sections below, the information shall be presented that shall illustrate why these decisions should be considered a policy failure and what caused the appearance of such policies.


3.1.1. What is the EU regional policy


The European Union’s regional policy represents a set of rule governing the allocation and management of the EU structural funds – the major financial instruments to help the lagging regions (or in some cases – the whole member states) of the European Union to overcome their social and economic problems. For the 2000-2006 period, regional policy is providing support for the following objectives:


Objective 1 – the Development of the least favoured regions.

Objective 2 - Conversion of regions facing difficulties.

Objective 3 –  Supporting the adaptation and modernization of policies and systems of education, training, and employment.[26]


The funds are allocated on the basis of the relevant EU regulations and the 7-year national development plans or single programming documents. For the period of 2000-2006, the total allocations for “Objective I” were foreseen to be 135,9 million euro, for “Objective II” – 22,5 billion euro, for “Objective III” – 24,05 billion euro, for the total of 195 billion.[27]


The East European countries shall be eligible for the Structural Funds only upon accession. However, from late 2001 they have been eligible for the structural pre-accession aid – ISPA, SAPARD and PHARE Economic and Social Cohesion. These instruments combined give up to 2-5% of the total national budget already now[28] and are supposed to be a major source of the country’s investment allocations. They are also supposed to be the prototypes of the EU Structural Funds for the accession countries that will not only provide for them immediate material resources, but also help prepare necessary procedures and administrative capacities for managing the Structural Funds when the countries accede.[29]


The European Union’s regional policy, the major instrument of which is the EU Structural Funds and in case of the accession countries – the pre-accession instruments, is emphasizing a region as a major territorial unit, in which the policy should be implemented. Therefore, the whole sector of Structural Funds is usually referred to as ‘Regional policy and coordination of structural instruments’. However, the EU regulations tend to be vague on the issue of what a region is, concentrating instead on the definitions of the NUTS (the nomenclature of statistical territorial units), under which a territory can be assigned NUTS I, II, III, IV or other levels, depending on certain characteristics which are beyond the scope of this analysis.


Very importantly, it is the NUTS II region which is eligible for support under ‘Objective I’ of the EU Structural Funds – the objective which presumes the assistance to the lagging regions[30] and for which over a half of all funds are earmarked. Although NUTS III regions are the major territorial units to receive assistance under Objective III – assistance to areas in industrial decline – the amounts earmarked for this objective are significantly lower. On the other hand, in the form, in which this objective is interpreted by the EU institutions, very few East European countries may be recognized having these kinds of problems.


While in large countries the whole country is usually a NUTS I unit, small countries, such as Lithuania, Latvia, or Estonia, are considered NUTS II regions and are eligible for the ‘Objective I’ of the EU structural support in their entirety. In this regard, the whole country may be called a ‘region’.  But in this case the EU structural support is not the support to country’s regional development, but it is rather the support to its sector development of the national economy, which makes a major difference for the creation of adequate policy frameworks. Even in larger member states or accession countries, in which several NUTS II regions may exist, all of them (i.e. de facto the whole country) may receive EU structural aid under Objective I, if GDP per capita in those regions is less than 75% of EU average. Of course, even then the policy may be called ‘regional’, inasmuch as it achieves the reduction of development inequalities between regions of the EU, but in this case an entire country or even several countries can be called a ‘region’.[31]

The major question remains what should be the role of local and regional authorities in both cases? Should it be different in small and large countries? The EU rules are perfectly clear – they promote the principle of partnership, requiring that all tiers of authority and social partners be involved in all stages of investment decision making (i.e. planning, implementation, etc).[32] However, they do not imply that regions should be invested with any direct managerial or planning responsibilities for the EU Structural Funds.


3.1.2. The Decision


The decision that is to be analysed consists of the several parts: i) In early 1999, the European Commission’s DG “Enlargement”, despite the dissatisfaction of other sectoral Directorates General of the European Commission, adopted the policy of accession countries’ preparations for the European Regional Development Fund and the European Social Fund via the development and simulation of planning procedures in the PHARE 2000 ESC initiative, on the basis of regional development plans for single regions. It was supposed that, by introducing the planning and management arrangements for this initiative, the accession countries shall simulate the procedures necessary for the EU Structural Funds and when the accession countries ultimately accede the EU, they shall already have all the procedural framework in place. The key problem was that in case of the EU structural funds, the “Objective I” countries, such as Lithuania, Latvia, Estonia and some others were required to draft national and not regional development plans, and funds were to be allocated for the country as a whole, not for a single region.  ii) As a rule, the accession country was allowed to choose one or more regions, in which all the aid of the PHARE 2000 ESC has to be concentrated. However, while at the beginning the DG “Enlargement” asserted that the funds may be used for many purposes (similar to those applied to the EU structural funds), subsequently it changed its position, allowing only measures of vocational training and business consultancy to be funded. This created major absorption problems, as in the case of Lithuania the selected regions had almost no demand for these services, being the most agricultural regions of the country.[33] iii) The DG “Enlargement” position fluctuated very frequently regarding almost all aspects of planning and management arrangements. While in 1999-2000 the regionalized approach was advocated, in 2001, after the replacement of the Head of Unit in charge of the accession countries, the position was changed to the national approach, as it has to be under the Structural Funds’ rules. Moreover, in 1999-2000, the position regarding which documents were to be drafted for receiving the PHARE 2000 ESC aid was fluctuating extremely frequently.  With regard to all three points raised above, the national administration of Lithuania and many other accession countries was upholding the controversial rulings of middle-level EU officials, even though they were sometimes contradicting each other, or were apparently economically unsound. 


As a result, different East European countries have taken a similar approach to the preparations for the EU structural funds[34]. In Hungary, 7 regions in charge of just planning and management of (presumably) the PHARE ESC funds were set up[35], of which 3 shall be eligible for PHARE aid; in Poland 5 existing administrative regions (out of 16) were chosen for PHARE ESC assistance, in the Slovak Republic the whole PHARE ESC funds were focused on only one NUTS II region in East Slovakia, in Latvia – 2 lagging, non-administrative regions were chosen, and in Lithuania 4 existing counties – NUTS III units - (out of 10) were selected for PHARE ESC support.


The issue of regionalization of the funds was understood differently, but some tendencies of their regionalization can be seen in almost all accession countries. In the Czech Republic, the Regional Development Act was passed in 2000, that addressed not only issues of national regional development policy, but also of the management of the EU structural aid. In Romania, “In 1998-1999, … a complex institutional framework was created that was meant to attain regional policy goals…, in observance of the principles and procedures, according to which allocation and management of the Structural Funds is made in the EU member states…”.[36] In Lithuania, the Regional Development Act was adopted in middle 2000 that, in fact, associated the national policy of regional development with the EU structural funds. Interestingly, it indicated that each single project funded from the EU structural aid, even if it was indivisible and located in several regions, as main roads, highways, etc., had to get the approval of the Regional Development Council of EACH region, in which it was to be implemented – this is besides all other mechanisms of approval typically applied to public investment projects, that were also to be observed. In Hungary, the Regional Development Act also addressed the issue of EU funds, although to a lesser extent.


In all accession countries, in which such regionalization was attempted in 1998-early 2000, the created legal and institutional structures began to be dismantled in late 2000-2002. In Latvia, Lithuania, Hungary the responsibility for the EU structural aid was moved from the ministries in charge of regional development to the ministries in charge of national economy or finance. In Lithuania, the Regional Development Act was never applied and is now being amended. In Hungary, the Cabinet of Ministers adopted a decision to provide the remaining 4 regions (non-recipients of PHARE ESC aid) with the aid of corresponding size from the national sources. In many accession countries, the focus of PHARE ESC was changed – with the approval of the new authorities of DG ‘Enlargement’. Instead of just business consultancy and vocational training, more flexibility was allowed – which, as I can argue, saved the program from failure. The very European Commission services (DG ‘Enlargement’ that has played a major role in defining EU stance towards the accession countries) recognised that its previous approach to programming PHARE ESC was in contradiction with the Structural Funds’ rules and was a policy failure.[37] The failure was unofficially attributed to the low competence of single persons in the EC services (both the EC services and the national officials referred to single EU officers of DG ‘Enlargement’).


Was there any economic harm done by this regionalization? Fortunately, not a considerable one, but this is mainly because the provisions regulating PHARE ESC aid were changed before the actual allocations began. Had this not been the case, problems could have been great. According to the unofficial forecasts of the Regional Policy Coordination Unit of the Lithuanian Ministry of Public Administration Reforms and Local Authorities (at that time – the institution in charge of regional development), only 10-15% of aid would have been absorbed if initial rules were applied[38], and it would have taken at least 12-18 months (possibly up to 2-3 years) for the Structural Funds’ planning documents to be approved if procedures of the Regional Development Act were applied. That would make it impossible to receive any EU funds, since its deadlines do not afford such a lengthy period of coordination.[39] The actual damage was, however, moral and institutional. In many accession countries, the civil servants in charge of the EU funds were demoralised, since they had to do things that contradicted the logic. Also structures were created[40] and laws passed in 1998-1999 (early 2000) that had to be changed immediately afterwards.


3.1.3. Why a Policy Failure – a Theoretical Justification from the Regional Development Theories and EU structural funds’ rules


Besides the direct conflict with the EU regional policy rules, the decisions recommended by the DG “Enlargement” in 1999-2000 and submissively followed by the majority of the accession countries’ governments also lack an economic justification. These decisions urged the national governments to concentrate funds in the most lagging regions. However, almost all modern regional development theories have argued that the spatial concentration of economic activity is inevitable and that the development gap between rich and poor areas, once formed, tends to further increase. Thus investment in the lagging areas is more expensive and can hardly be justifiable, especially in cases when the nation as a whole experiences serious developmental problems.


According to the theoretical model of growth poles, formulated by Perroux in the 1950s, “…economic space as an abstract field of forces leads to the notion of a vector of economic forces, and hence to the concept of growth poles.”[41] According to Lasuen, for Perroux and his followers, development has been attributed to the disappearance of old industries and the appearance of new ones, via the process of innovations. Since the new industries offer a more innovative product and face less competition, they may increase their profits and create preconditions for further growth. [42]


This, in fact, means that investment should also be preferably concentrated in richer regions. For example, as Hirschman argues[43], building infrastructure in under developed regions is too expensive and it would therefore be better to promote ‘growth poles’, hoping that they will trickle down, thereby causing positive effects on development of lagging regions. As Armstrong and Taylor argue, while regional development policy and support to lagging regions may be beneficial for several reasons, such as avoidance of social tensions, inflationary pressures caused by industrial over concentration, urban congestion and others, it is also apparent that industries in ‘growth poles’ benefit from agglomeration and localization economies. The first one is caused by benefits arising from the concentration of infrastructure, business services, and skilled labour force around areas of concentration of economic activity, and the other one – by the possibility to exchange information, to adopt innovations, to get personnel with specific skills, and by other benefits arising from the concentration of businesses with similar profiles. [44]


Thus, as it seems, the growth of ‘growth poles’ is often cumulative, i.e. the gap between the core and the periphery demonstrates a tendency to increase, and this is exactly what is formulated in the theoretical writings on circular and cumulative causation. Contrary to the neoclassical thought, which presumes the existence of equilibrium caused by the free market forces, the theory of circular and cumulative causation asserts that “[free market] is more likely to generate a process of cumulative causation that will carry it (disequilibrium) further and further from equilibrium”.[45]   Domar’s knife-edge theory formulated in 1946, Harrod’s book ‘Towards a Dynamic Economics’ published in 1948, and Myrdal’s ‘Economic Theory and Under Developed Regions’ published in 1957 are all dedicated to proving this assumption. While Domar’s theory presumes that growth requires investment (which is frequently flowing into richer regions rather than the lagging ones) and the failure to invest at the same percentage rate as the growth of national income results in unemployment, Harrod’s cumulative causation anticipates that investment decisions are often based on the expected rate of growth, and the expectations are likely to be better in richer areas.[46] This only strengthens the Perroux’s view that development is always polarized, which leads to dominance and dependence.[47]


A number of other theoretical presumptions elaborate on single aspects of growth causes. For example, Everett Hagen’s gradualism presumes that “…economic development takes place where the socio – cultural conditions are appropriate for it and cannot take place otherwise”[48] which, in fact, means that more traditional societies are unlikely to catch up with the pace of development, and while this is true of developed vs. developing countries, why couldn’t it be true of developed vs. developing regions of the same country? The theory of instant entrepreneurship presumes that development results may depend on the entrepreneurs’ initiative, which, besides other factors, is constrained by the lack of knowledge. Knowledge and information are, once again, better available in ‘growth poles’ rather than periphery. Ohlin’s theory of interregional trade indicates that “…different regions have varying endowments of natural and human resources, and because of varying economic histories, they also have different stocks of plant and equipment in existence and varying capacities to save and invest.”[49] In the absence of perfect mobility of factors of production, as Ohlin suggests, the differences in the pace of development may be conservated for quite a long period of time. 


Is there then any hope for the periphery? Should it resist tendencies of cumulative growth in the core areas? According to John Friedman, not necessarily so. As he argues, core regions tend to organize the dependence of their peripheries through systems of supply, market and administrative areas. They transmit impulses of innovation to the peripheries, and, up to a certain extent, the core region’s growth may have positive effects on the entire spatial area. Generally, however, the issue of geographical polarization remains a problem (primarily a social one), despite the fact that cumulative growth of the core brings maximum benefit to the country as a whole. Issues of unequal income distribution, absence of mobility of factors of production may not allow the periphery to benefit from the development results.[50] As a result, regional policy may become necessary, and Lasuen makes a point, which represents typical fluctuations between the necessity to support the periphery and to invest in the core, by saying that “…it could well pay to have a two pronged strategy. On the one hand, there should be an effort to foster the fastest possible transformation of the structure of the leading business firms…”[51] but on the other hand, there should be efforts to stimulate backward regions. The same point is reasserted by Armstrong and Taylor, as already mentioned above. They argue that regional policy is necessary, despite theoretical findings that it may cause a net lose for the country as a whole.[52] While they probably primarily meant richer countries, such as the UK, the same may be true of developing or transitional economies.


Importantly, even if the advantages of regional policy may be too few, the political (rather than economic) logic will still disallow to ignore it. According to Rodwin, “…it is easier politically to advocate dispersal and then allocate resources otherwise (or allow such allocations to occur)…”[53] because geographically elected Members of Parliament are likely to argue for the regional concentration of funds even if there is overwhelming evidence on the detrimental consequences of such an approach. Moreover, irrespective of what the particular Members of Parliament think, it is politically impossible, in a democratic society, to assert that the pro-poor policies are unnecessary, due to expected negative reaction from under developed regions (which, in some cases, may have more residents and voters than the cherishing ones). 


Armstrong and Taylor also tend to associate regional development policy with social rather than economic rationale. As it is possible to imply from the text of their book ‘Regional Economics and Policy’ (though this is my strictly personal interpretation), the promotion of industries’ competitiveness or other purely economic goals may well be valid for regional policy, but they can always be juxtaposed with the expected return from public investment alternatives and, as a result, regional policy shall be confined in scope. However, social goals do not need such a comparison; on the contrary, they need pervasive assistance based on the criteria of poverty or social exclusion. As Armstrong and Taylor suggest, it then becomes even necessary to justify why regional policy should not be based on social objectives, in order to legitimately justify why social spending is not so pervasive in regional development (indeed, since defiance of poverty cannot be rejected by a democratic government, this is a major concern for the administrations wishing to promote economic growth)! In this regard, they assert that such a justification can be offered by indicating that social problems (primarily social exclusion) are the concern of national, not regional policy.[54] 


All these considerations cause the necessity to define appropriate policies for countries, which face a severe scarcity of resources, a category that Eastern Europe still belongs to. While such policies may be very complex, Armstrong and Taylor argue that they may be divided into two possible categories: measures based on market approach and measures based on interventionist approach. The market-based approach presumes that problems were caused by market inefficiencies and thus the best remedy is deregulation, minimal expenditure for regional policy, and some tax incentives to improve efficiency. The interventionist approach is focused on the reverse assumption – that problems were caused by the lack of regulation, and the problems should be resolved by inducing inward investment, stimulating indigenous growth, regenerating high unemployment areas through public investment in infrastructure.[55][56]  However, while the market based approach, if it is chosen, can be relatively inexpensive, the interventionist one would require heavy funding which East European. countries could hardly afford. At the same time, it is the interventionist approach, which is defended in most of the cases, since it is held that free market can cause the outflow of the young and skilled labour force from lagging regions, thereby further exacerbating the regional development problems. It may also conservate the development gaps for too long a time or, as some would argue, they are unlikely to reduce interregional disparities at all, irrespective of the time factor.


Overall, there is the agreement among the theorists that regional development is a social rather than the economic phenomenon. Regional development policy of the central government becomes necessary to diminish social tensions among the rich and poor regions, but the overall social, economic, or financial returns for the nation as a whole are usually smaller (and may be considerably smaller in case of investment in the lagging regions). Moreover, there is no justification for “over-supplying” governmental subsidies, business and training services in the lagging regions, as in this case the projects become less efficient and the approach of business service and training companies - formalistic. As a result, the conclusion may be firmly established that there was no economic justification for the initial decision to allocate such significant amounts of aid for such narrowly defined areas in the most lagging regions of the country. This decision does not become more rational even if social considerations are taken into account.


3.1.4. The Actors and Outcomes


Let try to apply the analytical framework of this paper to the case. The following aspects must be taken into consideration:


1. Civil servants in charge of the funds were usually much worse remunerated than the PHARE local experts who are supposed to assist them. In Lithuania, the salaries between a civil servant and a PHARE assistant differed as much as 15-30 times in 1999-2001. Thus a PHARE local expert could have received up to 15 times more than Department Director and up to 30 times more than an Officer.


2. The EU Structural Funds’ rules are very complicated. While there is comparatively little knowledge of integration in all East European societies, the problem of knowledge among politicians and senior executives is particularly acute in this field. Even though a lot of seminars and explanations were launched, it usually took up to 9 months for an employee directly working in a responsible administrative unit to perceive the whole complexity of these issues[57] – what can then be said of persons who only occasionally attended training sessions.


3. The selection to the civil service in East European countries was still predominantly based on unobjective factors, such as personal acquaintances etc.[58] The same is true of the system of promotions. As a result, the level of competence in units in charge of the EU funds suffered three times: as a result of complicated rules, due to the lack or outflow of personnel, and due to the lack of skills or willingness to acquire them.


4. The lack of knowledge in the whole society and between those influencing decision making, as well as – sometimes but not always – the lack of competence in the civil service units directly in charge of the EU funds, caused increased pressure from the politicians and interest groups to adopt decisions that are impossible to adopt under the EU rules[59], which was counter balanced (or sometimes exacerbated) by an increased pressure from the EU to follow its rules or their arbitrary interpretations without deviation. The gravity of the problem can be understood when realizing how much money is received and channelled! At the same time, civil servants often feared to report arising problems to the superior authorities and/or do surrender to unjustified demands of either the politicians or interest groups, or the very EC. Under the universal lack of knowledge and the huge stakes involved they had an increased chance to be themselves accused immediately, should the problem become known, of the lack of results or the inability to implement political decisions.[60] This problem was becoming particularly acute when civil servants directly in charge of the EU funds themselves had doubted competencies, since in this case the fear to be fired without a chance to find a new job added to the lack of ability to provide an adequate explanation or to justify a policy alternative.[61]


5. The very European Commission tended to fluctuate often, as the above-mentioned case of PHARE ESC demonstrates. While in many cases the EC introduced more discipline in East European public administrations and helped in taking effective solutions with less domestic resistance, the experience of dealing with DG ‘Enlargement’ in 1999-2000 demonstrates the contrary. The very Commission services offered an economically damaging approach.[62]


How were then various actors likely to respond to each others’ actions in the field of EU investment planning in the light of the role of an individual decision maker? Interconnections between civil servants directly in charge of the EU funds, other civil servants, politicians, interest groups, media, and the EC can be taken as the basis. The author’s own experience in the Lithuanian government, interviews and literature review suggest the presumptions made below.


Under the given circumstances, civil servants in charge of the funds were likely to maximize their benefits either by ignoring the existing problems and underreporting them in the hope that this will prolong their job security. This category of civil servants, however, was well aware that soon the system is going to collapse or problems become known and try to escape the governmental administration as soon as possible.[63] Even if they succeeded to overcome immediate problems, these were still very likely to arise after the each next change of political administration, since the newcomers were likely to blame the civil servants for the lack of results, without looking too much at the causes.


In 1999-2000, the Lithuanian Ministry of Public Administration Reforms and Local Authorities – the institution then in charge of the Structural Funds, shown no resistance to the ‘regionalized’ approach to managing PHARE ESC funds, even though it well understood the consequences. The gravity of the problems, such as the lack of capacity in the regions, the lack of absorption capacities for measures that were initially designed for funding under PHARE ESC, etc., was never reported to the politicians or senior executives. At the same time, all employees directly in charge of the EU funds voluntarily or forcibly left the governmental service in late 2000 – early 2001, mostly for PHARE consultancy Another phenomenon which is worth mentioning is that, irrespective of the problem at stake, an explanation on why a particular approach was taken most frequently referred to an oral or e-mail opinion of a certain EC services’ official at the level of head of unit or below.[64]


Other civil servants, knowing little about the funds, but wishing to have a stake, tended to impose barriers on effective decision-making. This took a form of delaying the adoption of cabinet decrees, increased criticism. The same results followed even when ‘other’ civil servants did not want to have any stake in decision-making, but were simply unaware of the circumstances. These reactions flowed from either these civil servants’ willingness to take over some part of responsibilities, to preclude the reduction in their functions as a result of increasing role of development planning for the EU funds, or from their genuine but wrong belief that they are doing the ‘right thing’ by associating the EU funds with the procedures or documents which they think are best.


In 1999-2000, there was no single draft legal act regulating EU structural aid in Lithuania, which could be submitted for Cabinet’s approval without lengthy (at least 6 months) interministerial coordination – mainly because all initiatives were immediately vetoed by the Ministry of Environment, that supposed that the draft Master Plan should be the basis for the allocation of EU structural funds’ investment. Other ministries, which tended to resist initiatives, included the Ministry of Economy (then in charge of the State Investment Program and some other sector development programs). The Ministry of Foreign Affairs – then the National Aid Coordinator – did not show any resistance, but played a major role in supporting ALL EC’s initiatives, whether or not logically or economically grounded.


Politicians and interest groups tended to require immediate material results. In the absence or under the lack of knowledge, they tended to adopt decisions contrary to the EU rules, or tended to commission assignments that make no or little sense. Even those politicians who understood the whole complexity of issues tended to keep silence, there being little expectation that the colleagues will understand, or simply because it was against their rational interest. For example, if a Member of Parliament is well educated and understands the complexity of the EU funds, he/she may still be willing to argue for the concentration of funds in the lagging regions, just because his/her own constituency is in one of them. The same with the interest groups – there is no reason why they should seek economic efficiency for the country as a whole instead of maximising their own benefit by pressing for economically inefficient decisions. A particular part of the interest groups – development consultancies – tended to misuse, especially in 1999-2000, their influence on weak governmental services by suggesting and implementing, on behalf of the state, economically unfeasible solutions.


Examples of politicians’ interests include their promises in the electoral constituencies to bring the Structural Funds to particular territories, expressions of dissatisfaction with slow pace of progress (a valid reason for which civil servants concerned may face charges even if they worked hard – simply because problems would rather be a result of too cumbersome procedures, the lack and outflow of personnel, etc).  Interest groups tend to lobby for their solutions and a typical response of the government to such a lobbying is the involvement of civil servants in charge of the funds into lengthy discussions.


The media, while tending to be objective, expresses its self-interest in the failure to study in-depth the surrounding circumstances. Therefore, it tended to criticize harshly any intermediate failures of the national government, as well as frequently supported any, even insufficiently justified, criticism of the European Commission services on the results achieved.


The media in Lithuania had not expressed any noticeable criticism of the EU officials’ suggestions, neither did it attempt to analyze these suggestions. However, any criticism by an EU official of the government’s policy was usually widely presented and commented (usually the national authorities were blamed, at least in all cases of the Structural Funds).


Finally, the European Commission services, while trying not to meddle into internal affairs of East European countries, sometimes made (and could avoid making) suggestions and recommendations which were frequently (though not necessarily and not always) taken by the National authorities as a must – simply because then any resulting failures might be attached to the EC services rather than the national civil servants, which ensures a higher career security. In some cases,  “recommendations” were, however, absolutely mandatory and any national civil servant trying to argue against was disfavored by the EU official and consequently by the national high level decision makers as well.


While the European Commission’s role is generally very positive in the accession countries’ development efforts, the above-presented case of PHARE ESC illustrates the contrary result. In no case does this mean that the paper’s author is criticising the present approach of the EC services, which is, I think, rational.


In 1999-2000, it was the European Commission services which ordered a ‘regional approach’ to PHARE ESC planning, mandated the pre-selection of target regions for investment support, but then severely constrained the possible range of measures under the investment schemes, making it practically impossible to absorb PHARE ESC funds. Even more, it was DG ‘Enlargement’ whose representatives orally ruled, in early 2000, to empower regional authorities with managerial functions for PHARE ESC management, requiring to make county governments in Lithuania – institutions in charge primarily of agriculture – key players in funds’ allocation, reporting, establishing priorities, etc. Once again, it was the EC services, which cardinally changed the approach in late 2000 – requiring (or rather recommending) to re-design the system for future PHARE ESC initiatives, making it more centralized.


How is self-interest reflected in all these actions? How did it determine the policy failure?


In case of civil servants, the personal interest was to preserve their career, to minimize their work load. This goal is easier to achieve when the superior authorities are not aware of problems, especially in cases when they are not expected to know the circumstances and are expected to apply punitive actions. The civil servants that are not directly in charge of the EU aid have a self-interest in increasing their institutional powers, participating in the process of planning and management, even though their participation may decrease efficiency of the policy making process. The politicians and interest groups can maximise their benefits by distributing promises of easy cash that later appear to be impossible to implement (something that civil servants can be blamed of). The media representatives can maximise their benefits by simply referring to opinions of EU officials, instead of analysing issues in detail (something they cannot do due to the lack of knowledge; their honoraria may, however, be received even without in-depth analysis). The European Commission’s officials can also maximise their benefits by telling popular points of view in the public and restrictive ones – to the government officials in charge of the funds. This sort of diplomacy was, indeed, used in 1999-2000 and resulted in increased difficulties for the governmental employees to prove to their own bosses and to the public that a different position should be adopted than that publicly admitted by one or another EU official.


How are high transaction costs in policy making reflected in these actions? How did they determine a policy failure?


The lack of information on the rules of the EU structural funds and sometimes – the lack of knowledge in regional economics, made the decision makers unaware of the possible consequences of the decision. As a result, the EU official’s suggestion was taken almost for granted due to higher reputation and knowledge that was usually attached to him. On the contrary, a national civil servant who tried to argue differently (if he tried, as cases in 1998-2000 were very rare) was almost without exception treated with suspicion. Thus the lack of information and unusually high costs of obtaining it distorted the perception of the policy makers and sometimes – also of the interest groups. Had the policy makers been aware of the EU structural funds’ rules and the circumstances of the DG “Enlargement” – Lithuanian civil servants relationship[65], they would definitely not have adopted the Regional Development Act in the format which de facto precluded the absorption of the EU structural funds and was never applied in practice. Had the senior civil servants be aware of these rules and of the basic principles of the regional economic development, they would have probably tried to negotiate with the DG “Enlargement” rather than accept its PHARE support package unconditionally. Had the other ministries, those not in charge of the EU structural funds, known the EU structural funds’ rules, they would not have argued for the solutions that were apparently impossible to implement, or at least they could have softened their position. Had the media been better informed, it could contribute to criticizing the EU position. Had the interest groups been better informed, they would probably better formulate their points of view, make them more professional, thereby avoiding a lot of unjustified policy demands. Indeed, this sector of policy has been characterized by the unusually high transaction costs (in terms of information), since Lithuania was at the very beginning of its preparations for the EU funds, no experience of knowledge existed, the rules have been very complicated and cumbersome, different rules applied to pre-accession aid and the future Structural Funds, and all these were incorrectly associated with the implementation of the national regional development policy. As a result, only a few civil servants directly in charge of the sector could have well realized what is happening and why.


3.1.5. The Analytical Conclusion


Since no economic development theory supports the policy attempts in question and there are no legal constraints that could have required its existence, the only logical conclusion can be made that the failure was caused by policy making constraints. The explanation is needed how these constraints affected the acceptance of the EU policy demands that were apparently irrational[66] and whether the preconditions that caused this acceptance have the potential of causing other policy problems.


The potential problem can be searched for either in individual actions, in which case the lack of knowledge and competence in specific (single) cases shall be the determinants of the policy failure, or in institutional constraints, in which case it shall be necessary to recognise that the knowledge and competence do exist, at least in some layers of the governmental administration, but they are constrained by institutional culture or the biased logic of decision making. In this paper a presumption is made that the scale of the problems and the possible consequences of regionalization of such great investment resources were known to the civil servants in charge of the funds’ planning and management.[67] Thus it is more likely that the causes of the policy failure should be associated with the peculiarities of the policy making process and the behaviour of policy making institutions, as well as high transaction costs.


As it should be clear enough, the decisions on creating structures for the EU funds, incorrectly associating them exclusively with regional policy, as well as much confusion on what should be done and how to prepare for the EU funds, have not been based on economic considerations. Such economic considerations can hardly be found, especially in a view of regional development theories outlined above.


As it is seen from the analysis, it is not even legally possible for such a small country as Lithuania to deliberately and exclusively concentrate public investment in lagging (NUTS III) regions only, under the EU Structural Funds’ rules, not to speak of economic logic. At this point we should recall that in Lithuania, under the PHARE ESC initiative – a supposed prototype of a major EU structural fund – it was exactly what happened! As for the other countries, their NUTS II regions have been smaller than the whole country’s territory and the concentration of PHARE funds can be legally justifiable. However, these countries did not avoid huge confusions in the preparatory stage, including the role of various plans, the choice of eligible measures etc. Therefore, their policies, while more rational superficially, also suffered from the restrictions of political and interest groups’ pressure and are recovering only now.


It can then be concluded that these policy decisions have been a policy failure of quite a large scale.


In a view of this theoretical and empirical background, a conclusion comes into mind that the system of European integration decision-making in the accession countries is insufficiently favorable to adopting effective decisions in this key sector of economic activity. Issues of the EU Structural Funds are ‘foreign’ to the policy-making systems in the region, and the systems are not adapted to the process of fair consideration, although substantial improvements happened in 2001-2003. The necessity for a governmental servant to rush about between so many different interest groups (or centres of power), most of which do not understand the essence of the problems, makes it more difficult to design adequate policies. Some of the problems were overcome in early 2000s, at least in Lithuania. The EC’s approach became much more flexible and is based on partnership rather than dictation; the national authorities acquired more competence, and even politicians (special compliments to the present Lithuanian Minister of Finance and the Vice Minister of Interior) have shown a considerable interest in the issues – indeed, something unbelievable for the late 1990s. However, the problems of coordination, lack of work incentives in the civil service are not yet overcome.


The two key questions remain – whether it was the European Commission which is ‘guilty’ of the initial over regionalization in the late 1990s, or it were the national governmental services and their problems; and whether it was a self-interest of actors involved that predetermined a policy failure, or there were other factors as well.


An answer seems to be that the reality of national decision-making provided a good basis for unconditional acceptance of the EC’s opinions. However, it should be noted that the central governments, in the absence of knowledge of the field by decision making actors, also possess a sort of exclusive right to present the EU policies in the light of their own interpretations, unless some more authoritative source – very likely the very EC – interprets differently. Therefore, the catalyser of the appearance of over regionalization in investment planning was the DG ‘Enlargement’s initial approach that could not have been overruled even by very rational arguments on the governments’ side. While some East European countries might have demonstrated better abilities to bargain, Lithuania represents the case of ‘absolute submission’ to the EU officials’ rulings.


As regards theoretical explanation, it seems that there is a sufficient evidence to assume that it was ‘a collision of personal interests’ and ‘high transaction costs’ that caused a policy failure. The given setting of interests settled due to various surrounding circumstances, such as the lack of knowledge or information and, possibly, the lack of strong and active national leadership able to support ‘the right side’; the lack of such leadership was also a factor that allowed the interest groups and decision makers to lobby for economically irrational solutions, created disincentives for technocrats to report and solve problems.[68]


3.2. Social Responsibility in Governmental Action – the Other Selected Cases


3.2.1. What are the Policy Areas and How They Are Influenced


Besides issues of regional development & the EU structural funds, other areas, in which the European Commission plays a very significant role are the issues of financial control & public sector internal auditing, governance reform, agriculture, and a wide range of other issues.  The influence of the European Commission on these sectors is exercised via the adoption of acquis communautuire by all the accession countries, and via various EU-sponsored aid programmes.


In case of acquis communautuire, an accession country frequently not only needs to adapt its national legislation to the EU standards, but frequently should also adhere to the interpretation that the European Commission’s officials are attaching to one or another legal act. It is noteworthy that, besides the mandatory part of acquis communautuire, there are a number of “soft law” instruments, such as recommendations, opinions, European Commission papers and publications that an accession country may be required to apply as well. Even if there is no “black letter law” or “soft law”, the European Commission’s officials may still require an accession country to take one or another policy action in order to increase the efficiency of public administration structures, to strengthen financial control or investment planning arrangements, to improve administrative capacities, etc. The failure of an accession country to adhere to these recommendations may result in the negative assessment of its progress towards the adoption of the EU rules and standards, as well as of its readiness to join the EU – something that the political circles of an accession country striving for the EU membership will hardly agree to accept. As a result, the relations between the EU officials directly in charge of the accession and the officials of accession countries may sometimes become the master-agent relations.    


In case of the aid programmes, the situation may become similar to the one described in the field of regional policy and the EU structural funds. Although the impact of the EU aid is always positive and the EU rules relating to the management of its programmes enable an accession country to achieve an increased efficiency in the management, as well as to decrease possibilities of fraud, irregularities, or corruption, sometimes these decisions may also decrease the efficiency of the aid packages themselves. In no case should this presumption be understood as the negation of the usefulness of the EU aid.  


One of the areas very heavily influenced by the European Commission is the public funds’ financial control methodology and the public sector internal auditing. The attention of the European Commission to internal auditing, fraud prevention in using public funds, and auditing the performance of the governmental institutions increased tremendously after the resignation of the European Commission in the late 1990s, due to the scandals related to the misuse of the Community funds. As a result, all the accession countries have been required to adapt themselves to the newly emerging EC rules, while they were developing in the very EU institutions.  The particularly high influence of the single employees of the European Commission on the introduction of financial control and public sector internal auditing rules was exercised because the field was included into the body of acquis communautuire, but “black letter law” instruments in the Community law were very few. The majority of thoughts on how the system was to be organized came from the informal discussions within the European Commission, working papers, written or oral opinions of single reputed sources. Moreover, the instruments were developing in the European institutions at the same time as they were being introduced by the member states. This meant that the rulings and opinions were frequently changing and the accession countries were required to swiftly adapt themselves to the changed circumstances. This, in turn, often meant that the legal basis already introduced and the structures already created must be quickly dismantled – something that is difficult to do under the national legal systems of some accession countries. According to the informal sources in the Lithuanian Ministry of Finance, the position of the European Commission has been changing dramatically from the late 1990s, when the introduction of the sound financial management & control, as well as public sector internal auditing systems and methodologies began as a part of acquis communautuire. While at the beginning the EU officials were considering single decrees of the Minister a sufficient legal basis for the system’s functioning, did not pay a lot of attention to the internationally recognized INTOSAI / EUROSAI standards, rather trying to develop their own, as well as had a restricted approach to the development of the administrative capacities, in 2000-2003 the position has already included the necessity to have “black letter law” instruments, such as national laws or Cabinet decrees stipulating the system and the procedure, a much more rigorous approach was taken to the issue of administrative capacities – strong internal auditing units were required in almost each governmental or semi-public organization with the established minimum number of employees.  According to the same sources, the influence of single employees of the European Commission on designing the national policies in these fields is indeed huge in the accession countries. As indicated during interview with an official of the Lithuanian Ministry of Finance, “The European Commission predetermines almost everything. The national authorities just follow the approach taken by the EU. The leading officials of the Lithuanian Ministry of Finance are usually happy with the results of the work of the Ministry’s Financial Control Methodology Department when the European Commission officials are happy and vice versa. At the same time, the replacement of single officials within the EC or changes in the current policies of the EC may lead to the pressure to immediately adopt new policies in the accession countries, even though the national legal systems may require several months of preparations and coordination. This is rarely an argument, since the fear to be subjected to the criticism by the EU for the lack of progress compels the governmental employees to take every effort to please the EU officers concerned”. 


Another sector, in which the influence of the European Commission may be high, but is much softer is public administration and civil service. In this field the democracy criteria have been implemented by Lithuania and many other accession countries already in early or middle 1990s and little room has been left for any EU-inspired reforms. The sector of public administration and civil service is generally not regulated by the European officials, and there are only very few specific legal acts regarding the civil servants.[69] There is, however, one cross-sector issue that the European institutions have always been concerned with – the issue of administrative capacities, especially the administrative capacities to manage the EU affairs. The pressure of the European Union institutions or single officials to increase the administrative capacities in one or another sector has always been significant. In general, this pressure may be considered a positive factor, as otherwise the national authorities would have hardly realized that great improvements are necessary in the personnel dealing with one or another task. However, in some specific cases, the EU officials’ recommendations may be quite arbitrary, i.e. how many civil servants are to be employed in a specific unit or area for the capacities to be considered sufficient. For example, the EU officials’ requirement to strengthen the planning function in the regional administrations (county governments) of Lithuania has led to a significant increase in the number of personnel in this tier of the government and, although there is no reason why the regional development units in the counties should be incapacitated, subsequently the European institutions changed their mind and began to ignore the administrative capacities at the regional level as a significant factor in determining Lithuania’s readiness to absorb the EU structural aid. In 1999-2000 the presence of such staff was, however, considered very important. Contrary to this case, in 2001-2002, the regular pressure of the European officials on the Lithuanian authorities to increase the administrative capacities in the units in charge of the EU structural aid and internal auditing resulted in the actual increase of the administrative capacities that were really necessary for the country. Without the EU pressure, the money-saving approach of the national authorities would have hardly allowed such a considerable progress.


One more sector that is worth mention is the nuclear energy sector, as the European Union’s position has always been to close the out-dated reactors built during the Soviet times. In this case, however, the influence was exercised rather by the entire EU as a political structure rather than by single European Commission’s officials. The national response to these demands was also the politicians’ own well realized response, i.e. that the nuclear energy sector must be sacrificed in order to get a positive assessment for the EU membership. These issues were well discussed and realized – thus the typical logic of the master-agent relationship among single civil servants does not apply to this case. The very stance of the EU to necessarily close these objects is, however, quite controversial. On the one side, there are arguments that the reactors build by the USSR are not safe. On the other side, there is hardly sufficient evidence that these reactors may not be exploited safely under certain conditions. The role of single officials both in the EU and the Lithuanian national administration was mostly related to the implementation of the well realized political will.


In other sectors, such as agriculture, transport, internal market, environment the role of the European Commission officials is also related to the interpretation of acquis communautuire and the assessment of the overall country’s progress towards the EU membership. The importance of the last factor has significantly decreased after the decision to accept certain accession countries was already taken. 


3.2.2. The Decisions


The decisions to be analyzed in this section are related to the changing recommendations of the EC officials on the scope of, structures and the legal basis for the public sector internal auditing, resulting in the necessity to quickly draft new legal acts, and the recommendations to enhance the administrative capacities.


3.2.3. The Assessment of the EU Influence


In the field of the public sector internal auditing, the EU influence was generally positive, as Lithuania and a number of other accession countries were lacking the effective control over the governmental financial resources, as well as over actions. It shall not be an exaggeration to say that the public sector internal auditing in Lithuania appeared directly as a consequence of the European Union’s policy demands. However, the EU – Lithuanian civil servants’ relations indeed represent the challenging case of EU policy impact. The national actions were almost always moving along the policy demands of the EU officials. This created an unstable policy making environment.


In the field of the administrative capacities, the EU influence can also be considered generally positive, although in many cases the EU officials were failing to provide clear and justified standards on why they think the administrative capacities in a certain area are not sufficient and how much personnel is needed in order to satisfy the EU. Such a lack of clarity has frequently confused the national authorities.


3.2.4. The Actors and Outcomes


While in the case of EU structural funds and regional development there was a wide range of actors involved in decision making (due to the high material importance of the sector), in the field of financial control and administrative capacities the general public, the media, and the interest groups generally had a very limited interest in the policy outcomes. The outcomes concerned primarily, if not exclusively, the governmental sector.


The civil servants directly in charge of the issues basically followed the same lines of behavior as in the case of regional policy. However, while in the case of the regional policy and the financial control methodology they were implementing the instructions of the EU officials (turning them into policy), in the case of administrative capacities the process was considerably more lengthy. While in the case of critical remarks to regional policy and financial control methodology draft laws or legal acts were drafted and presented comparatively quickly, in the case of administrative capacities the new working places were usually appearing only after a considerable period of time – i.e. the Lithuanian decision makers were much more keen to uphold the EU officials’ views on issues that did not require the material allocations from the country’s own resources than those which required such allocations. Of course, the issues of the lack of administrative capacities were also brought forward by the civil servants to the senior decision makers, but were usually postponed at that level.


The civil servants working in other ministries (not directly concerned with the policy area) were participating in the processes with a considerable passivity, as the issues of administrative capacities in other ministries were none of their business, and the issues of financial control methodology was of their concern, but had considerably less material and political implications than the EU Structural Funds.


The same can be said about politicians. However, the Budget Committee of the Lithuanian Parliament was directly concerned with the issues of the public sector internal auditing and the controversy between the instructions from the EU and the opinions of the national politicians was sometimes occurring. The role of the politicians was also frequently restrictive when the introduction of new administrative duties to deal with acquis communautuire was at stake. In this field, the politicians were sometimes keen to uphold the populist views – not to increase the number of civil servants, especially before the elections.


The interest groups and the media have shown a limited interest in the sector, as already noted above.


Finally, the European Commission services were regularly monitoring the progress. In the field of the public sector internal auditing, they were frequently changing their own standards and requiring the accession countries to do the same. In the field of administrative capacities, they were making statements on the sufficiency or insufficiency of the administrative capacities.


3.2.5. The Analytical Conclusion


The cases of the public sector internal auditing and the administrative capacities can be considered proving the same lines of behavior as the case of regional policy did, but on a lower scale. This lower scale can well be explained by the fact that various decision making stakeholders were considerably less personally concerned with the policy outcomes than in the first case. Due to this reason, the “penalties” for national civil servants for the criticism on the EU’s side have been lower. In general, the cases presented in this sub-section demonstrate that the master – agent relationship between the EU and national civil servants of the accession countries exists not only in the field of regional policy and the EU structural funds (a vital area of the EU’s influence on the national economy), but also in other fields. 


3.3. Social Responsibility in Governmental Action – the World Bank


3.3.1. The Assessment of the World Bank’s Influence on the National Policy Agenda


According to the World Bank, the organization’s strategy in Lithuania is the following:

... the Bank's assistance to Lithuania has strongly supported the country's transition to a market economy. Bank-assisted projects have concentrated on key reforms to maintain macroeconomic stabilisation to build investor confidence, reduce government involvement in business activities, and enforce the basic legal tenets necessary for private activity. Another important area of Bank involvement has been support for the international effort to clean up the Baltic Sea.

The Country Assistance Strategy notes the impact of the Russian crisis on the Lithuanian economy and the need to adjust macroeconomic and structural policies to address this impact. Maintaining sustainable growth and managing the resulting increase in macroeconomic risks will require a near-term policy response combing a fiscal adjustment with systematic structural reforms to limit quasi-fiscal deficits in key sectors. These measures would also help Lithuania meet its overarching medium-term goal of EU membership, as well as laying the foundations for a more rapid convergence of living standards toward EU levels and for sustained reductions in poverty.

The World Bank Group and the Government of Lithuania have agreed on a programme covering the three main areas linked to the Government’s priorities – human development, macro-financial stability, and EU accession. The Bank will support Lithuania through policy advice and dialogue, economic and sector work, and selected lending operations.

Pursuing the assistance strategy, the World Bank will help Lithuania to:

  • design and finance reforms and institution building in social security, health, education, and social assistance - The main aims are to increase the cost-effectiveness and financial viability of social spending, raise the quality of service delivery, and reduce poverty through analytic work, calibrated lending and policy dialogue.
  • design and implement integrated policies for macroeconomic and financial stability – The World Bank will provide support for understanding and reducing macro-financial vulnerabilities through regular macroeconomic monitoring and economic analyses, for institutional strengthening of the financial sector through advice and analytic work. The World Bank will also assist Lithuania in developing its overall structural reform program through policy dialogue, supportive economic analysis, and possible adjustment lending.
  • implement the agenda of measures, reforms and investments needed for EU accession - In co-operation with other donors, the World Bank will accord priority to assisting Lithuania in the following areas: i) enhancing competitiveness, ii) developing the rural economy and raising agricultural productivity, iii) strengthening public administration, capacity and institutions at the central and sub-national levels, and iv) upgrading infrastructure and environmental management to meet EU accession standards and objectives - through analytic work, policy advice, possible lending and helping the Government co-ordinate donor efforts.

The assistance program ... is expected to comprise the preparation of a number of lending operations, up to USD 220 million over the period, and a package of non-lending services, conditional on effective implementation of the World Bank’s existing portfolio and satisfactory policy performance. [70]

From the year 1992, when Lithuania joined the World Bank, a number of projects were implemented with the World Bank‘s participation, most importantly:

Table 1. The List of the World Bank‘s Projects Implemented in Lithuania. The official information of the World Bank,

Project Portfolio Commitments

Project Name

Total Amount
at Board*



Board Approval

Rehabilitation Project





Structural Adjustment Loan Project


Economic Policy



Highway Project





Klaipeda Environment Project





Power Rehabilitation Project


Electric Pwr & Engy.



Enterprise & Financial Sector Assistance Project





Private Agricultural Development Project





Klaipeda Geothermal Demonstration Project


Electric Pwr & Engy.



Energy Efficiency/Housing Pilot Project


Urban Development



Siauliai Environment Project





Social Policy & Community Social Services Development Project


Social Protection



Municipal Development Project


Urban Development



Health Project


Hlth, Nutn & Popultn



Klaipeda Port Project





Structural Adjustment Loan Project (02)





Vilnius District Heating Project


Electric Pwr & Engy.



Education Project





Housing Project

to be decided

Urban Development




The World Bank can hardly exercise the same level of political influence on the political agendas of the EU accession countries as it did in early 1990s, when Lithuania, like many developing countries, depended on the World Bank’s loans. Neither does the criticism of the World Bank’s positions to the national problems entail the same level of response as the EU’s criticism does. Several reasons may be offered to explain this difference in national response: i) the material allocations of the World Bank for the accession countries are considerably lower than the EU allocations; moreover, the World Bank’s allocations frequently come in the form of loans rather than unreturnable aid; ii) the economic conditions in the accession countries are improving and they are non dependent on the borrowing resources; iii) the dependence of the accession countries on the World Bank’s expertise is limited, since in the accession countries’ consultancy markets the EU predominates; iv) there is no sort of acquis communautuire of the World Bank that the accession countries would strive to adopt.


Of course, this does not mean that there is no niche for political influence for the World Bank. The World Bank, together with the International Monetary Fund is providing expertise on such issues as fiscal and monetary policy; the World Bank funds a number of programmes in the field of health, education. Thus, allthough Lithuania recently rejected the World Bank’s structural adjustment loan due to “too many unnecessary conditionalities” supplemented by the availability of domestic resources and lower interest rates in the international financial markets, the advice of the World Bank, if and when it is justified, may be accepted. It is, however, not the same case as in the European Union. Firstly, the contacts between the World Bank officials and the Lithuanian officials are much less frequent; secondly – the advice of the World Bank may be upheld or rejected by both the politicians and the civil servants without the same consequences as it would have been in the case of the EU. The narrow exception is the sector of regulating the financial markets, as well as the monetary and fiscal policy, in which the World Bank’s opinion, if expressed, generally should be upheld of rejected with a sufficient argument. However, even in this sector the World Bank’s position is far from being “mandatory”. In other sectors, such as governance reform, civil service, health, the World Bank official’s advice may be rejected quite easily, partly because the World Bank itself rarely monitors the feedback, does not press (and has no arguments to press) for the implementation of its advice. Moreover, in most fields of the World Bank’s advice, there is no single solution. Thus the national government and the civil servants concerned have the possibility to argue (contrary acquis communautuire, in which there can be little argument).


3.3.2. The Actors and Outcomes


[to be significantly expanded]


The civil servants directly in charge of the issues influenced by the World Bank usually face little necessity to accept or reject the World Bank’s demands, as the World Bank either focuses on very fragmented (single) projects or provides a fragmented policy advice. Of course, this does not mean that the World Bank’s suggestions may be fully ignored. However, the case of health is a good illustration of how the far-reaching recommendations worked out with the assistance of the World Bank may be fully rejected. Not only did the national authorities refuse to accept the recommendation of optimizing the distribution of hospital beds in the country; they did not provide any valid reasons for the rejection. The World Bank’s policy response was very limited, if any.


The civil servants in other state institutions are even less interested in the policy outcomes, due to a very fragmented character of the World Bank’s influence. The interviews carried out in the framework of this project have revealed that issues related to the World Bank do not entail a clash of major policy interests at this time.


The politicians are mostly concerned with the impact of the World Bank’s recommendations of the electorate.  However, the World Bank has a limited influence on such policy fields, as it did in the early 1990s, when its advice on privatization, public administration reforms, construction of the market economy had to be followed.


The interest groups, the media, and the public have accordingly shown a limited interest in the World Bank’s policy advice or demands.


3.3.3. The Analytical Conclusion


[to be significantly expanded]


It may be concluded that the World Bank’s influence on the Lithuanian policy agenda is much more limited than the EU’s. This is not strange, as the World Bank’s influence is much more fragmented, its aid is much less significant, and generally this organization cannot compete with the EU. 


3.4. Conclusions of section 3.


[to be significantly expanded]


Section 3 briefly reviewed the selected cases of the political influence of the EU and the World Bank on the national policy agenda. The conclusion was made that the EU’s influence on the national economic policy is very high, while the impact of the World Bank’s policy is now quite weak.


4. Policy Recommendations


[to be significantly expanded]


What could be the policy recommendations?


Of course, such a general staff as a call for increase of material incentives in the civil service, increase in its professionalism, better explanatory campaigns… Why not? Although somebody may be sceptical about that, one should also note that the West European governments demonstrate a better ability to negotiate, to present arguments in a professional way.


On the other hand, what should not be recommended, is an attempt to get rid of personal self-interest among the actors of decision making – this, according to theory, is not possible. Even a general theoretical presumption – that decision making shall be insulated from outside influences if the government becomes more autonomous (i.e. disallows ‘outside influences’ to occur) should be juxtaposed with the theoretical advantages of ‘policy networks’ approach. The ‘closure’ of the government may insulate it from corruption, but it is not the corruption that caused the problem in question, but rather the lack of knowledge, capacities and, possibly, strong national leadership. These circumstances surrounded the appearance of a particular setting of personal and institutional interests (also self-interest) that caused a policy failure. These factors can not be optimised by introducing more government autonomy.


There may therefore be two alternative approaches: 1. ‘To wait and see’ – i.e. to hope that the private experts’ market will soon be saturated, the difference in remuneration between civil servants and experts will fall providing more prestige for work in the government, more knowledge will be acquired by various decision makers. 2. To intervene either by further toughening control arrangements from the EU’s side, or by offering better material incentives to the civil servants, alongside with toughening control arrangements, professional requirements.


Importantly, at least in Lithuania, material incentives cannot be offered, since they are strictly regulated in the Civil Service Act. Controls on the EU’s side are tough enough and further increase may not bring sustainable results. Any other types of interventions may bring some positive results, but may also result in unneccessary punishments or further demotivation in the civil service (since the system is not able to identify and punish those who are guilty of the phenomenon, but is more likely to shift blame on those working hardest).


A good step, at least in Lithuania, was the transfer of overall responsibility for the Structural Funds’ management to the Ministry of Finance which is a relative ‘efficiency island’ in terms of personnel selection and their professionalism. Although not all ‘evils’ of civil service can be considered non-existent even there, its performance seems to be much better than that of other governmental institutions. This could therefore be the best approach for the present time – the reliance on selected (administratively and professionally strong) institutions and the placement of overall responsibility for the EU structural funds on such ‘efficiency islands’. Other factors, such as training, strong leadership also matter, but are unsustainable in a long run – leaders, unless they are career employees in relatively strong ‘efficiency islands’ inevitably change due to political instability, and training cannot bring a decisive progress due to low remuneration – a trained personnel tends to leave the government.





[not all sources are listed at this stage]


Academic Literature:


1.      Amdam, R., Sectoral Versus Regional Planning and Development in Norway, European Planning Studies, Vol. 10, No. 1, 2002.


2.      Armstrong, H., Taylor, J. (2000) Regional Economics and Policy, Blackwell Publishers.


3.      Bachtler, J., New Structural Fund Programming: Laying the Foundations in the UK, European Policies Research Center, March 2000.


4.      Blazhek, J., Prikryl, J., Nejdl, T. (2002), Capital Investment Funding in the Czech Republic, unpublished manuscript, Local Government and Public Service Reform Initiative, Open Society Institute, Budapest.


5.      Boardman, A.E., Greenberg D.H., Vining A.R., Weimer D.L. (2000) Cost-Benefit Analysis: Concepts and Practice, Prentice Hall, Inc.


6.      Brozaitis, H., Linartas, R., Nakrosis, V., Petkevicius, A. (2002) The Assessment of the Impact of the EU Regional Policy on the Administrative Structures in Lithuania, Open Society Fund, Vilnius.


7.      Bucek, J. (2002) Regionalization in the Slovak Republic – from Administrative to Political Regions, unpublished manuscript, Local Government and Public Service Reform Initiative, Open Society Institute, Budapest.


8.      Comfort, A., Chavaki, V. (2000), Problems at National Level in the Management of the Structural Funds, Budgetary Affairs Series, BUDG 109 EN, Directorate General for Research, European Parliament, Bruxelles.


9.      Cypher, J.M., Dietz, J.L. (1997) The Process of Economic Development, Routledge.


10.  Downes, R., New Structural Funds Programming: Laying the Foundations in Austria, European Policies Research Center, March 2000.


11.  Downes, R., New Structural Fund Programming: Laying the Foundations in Sweden, European Policies Research Center, March 2000.


12.  Evans, P., The State as Problem and Solution, in Haggard, S., Kaufman, R. (1992), the Politics of Economic Adjustment, p. 139-181. 


13.  Friedman, J, A General Theory of Polarized Development, in Hansen, N.M. (1972) Growth Centers in Regional Economic Development, The Free Press, p. 82-107.


14.  Glowacki, W. (2002) Regionalization in Poland, unpublished manuscript, Local Government and Public Service Reform Initiative, Open Society Institute, Budapest.


15.  Halkier, H., New Structural Fund Programming: Laying the Foundations in Denmark, European Policies Research Center, March 2000.


16.  Higgins, B., Savoir, D.J. (1995) Regional Development Theories and Their Application, Transaction Publishers.


17.  Kalman, J. (2002) Possible Structural Funds Absorption Problems: The Political Economy View with Application to the Hungarian Regional Development Institutions and Financial System, unpublished manuscript, Local Government and Public Service Reform Initiative, Open Society Institute, Budapest.


18.  Kickert, J.M., Klijn, E.H., Koppenjan, J.F.M. (Eds) (1997) Managing Complex Networks: Strategies for the Public Sector, Thousand Oaks.


19.  Lasuen, J.R., On Growth Poles, in Hansen, N.M. (1972) Growth Centers in Regional Economic Development, the Free Press p. 20-49.


20.  Moe, T., The Politics of Structural Choice: Toward a Theory of Public Bureaucracy, in Williamson, O.E. (1995) Organizational Theory, Oxford University Press, p. 116-153.


21.  Nelson N., Wright, S., Participation and Power, in Nelson, N., Wright, S. (1995) Power and Participatory Development, p. 1-18.*


22.  Petkevicius, Algirdas (2001), Regional Policy in Lithuania on the Eve of EU Structural Funds, Local Government and Public Service Reform Initiative, Open Society Institute, Budapest.


23.  Popa, A., Giosan, V., Goldenberg-Vaida, V. (2002) Capital Investment Financing in Romania, unpublished manuscript, Local Government and Public Service Reform Initiative, Open Society Institute, Budapest.


24.  Preparations for the Structural Funds in the Candidate Countries (Synthesis Paper), Twinners Seminar, 15-16.03.2001, Brussels.


25.  Priede, M., Strazda, A. (2002) Capital Investment Funding in Latvia, unpublished manuscript, Local Government and Public Service Reform Initiative, Open Society Institute, Budapest.


26.  Raagmaa, G., Public Leaders in Regional Economic Development, European Planning Studies, Vol. 9, No.8, 2001.


27.  Ray, D. (1998) Development Economics, Princeton University Press.


28.  Rodwin, L., Urban Growth Strategies Reconsidered, in Hansen, N.M. (1972) Growth Centers in Regional Economic Development, the Free Press, p. 1-19.


29.  Rooney, L., New Structural Funds Programming: Laying the Foundations in Belgium, European Policies Research Center, March 2000.


30.  Rooney, L., New Structural Fund Programming: Laying the Foundations in Germany, European Policies Research Center, March 2000.


31.  Rooney, L., New Structural Fund Programming: Laying the Foundations in the Netherlands, European Policies Research Center, March 2000.


32.  SIGMA Final Report: Comprehensive Review of the State Control, 05.10.2000.


33.  Taylor, S., New Structural Fund Programming: Laying the Foundations in France, European Policies Research Center, March 2000.


34.  Taylor, S., New Structural Fund Programming: Laying the Foundations in Spain, European Policies Research Center, March 2000.


35.  Thematic Evaluation of Structural Fund Impacts on SMEs, Synthesis Report, European Commission, July 1999.


36.  Thomas, M.D., Growth Pole Theory: An Examination of Some of Its Basic Concepts, in Hansen, N.M. (1972) Growth Centers in Regional Economic Development, the Free Press, p. 50-81.


37.  Vasiliauskas, Aleksandras, Lietuvos ekonomikos pletros strategijos kurimo ir igyvendinimo metodologiniai principai, “Pinigu studijos”, Nr. 4, 2000.


38.  Vasiliauskas, Aleksandras, Lietuvos ir Europos Sajungos saliu ekonomikos issivystymo ir augimo palyginamoji analize, “Pinigu studijos”, Nr.2, 2000.


39.  Vitale, Rosella and Polverary, Laura, New Structural Fund Programming, Laying the Foundations in Italy, European Policies Research Center, March 2000.


40.  World Development Report (1997), the World Bank.


41.  Wunsch, J.S., Institutional Analysis and Decentralization: Developing an Analytical Framework for Effective Third World Administrative Reform, Public Administration and Development, Vol. 11, p. 431-451, 1991.


* - the publisher is unknown, since the publication is not on the LSE library catalogue. However, it was a part of course readings in Development Management.


Legal Acts:


National (Republic of Lithuania)


1.      Regional Development Act, 21.07.2000.


2.      Cabinet decree No. 543 of May 14, 2001 “On the Approval of the Order of Composition and Implementation of the State and Municipal Budgets of the Republic of Lithuania”.


3.      Cabinet decree No. 478 of April 26, 2001 “On the Approval of the Order of Planning, Concretizing, Using, Accounting and Controlling State Investment Earmarked for Capital Investment”.


4.      Cabinet decree No. 476 of April 26, 2001 “On the Concept of County Governance Reform, Directions of County Territorial Reform, and Action Plan for Submission of Directions of County Territorial Reform to the Society”.


5.      Cabinet decree No. 379 of April 5, 2001 “On The Approval of the Order of Evaluation of Implementation of Programs managed by Managers of State Budget Allocations of the Republic of Lithuania”.


6.      Cabinet decree No. 127 of February 27, 2000 “On Internal Audit of State Enterprises and Agencies”.




1.      Commission Regulation No. 448/2001 of 2.03.2001 “laying down detailed rules for the implementation of Council Regulation No. 1260/1999 as regards the procedure for making financial corrections to assistance granted under the Structural Funds”.


2.      Commission Regulation No. 438/2001 of 2.03.2001 “laying down detailed rules for the implementation of Council Regulation No. 1260/1999 as regards management and control systems for assistance granted under the Structural Funds”.


3.      Commission Regulation No. 1685/2000 of 28.07.2000 “laying down detailed rules for the implementation of Council Regulation No. 1260/1999 as regards eligibility of expenditure of operations co-financed by the Structural Funds.


4.      Commission Regulation No. 1159/2000 of 30.05.2000 “on information and publicity measures to be carried out by the Member States concerning assistance from the Structural Funds”.


5.      Council Regulation No. 1268/1999 of 21.06.1999 “on Community support for pre-accession measures for agriculture and rural development in the applicant countries of central and eastern Europe in the pre-accession period”.


6.      Council Regulation No. 1267/1999 of 21.06.1999 “establishing an Instrument for Structural Policies for Pre Accession”.


7.      Council Regulation No. 1264/1999 of 21.06.1999 “amending Regulation No. 1164/94 establishing a Cohesion Fund”.


8.      Council Regulation No. 1260/1999 of 21.06.1999 “laying down general provisions on the Structural Funds”.


9.      Commission Regulation No. 2064/97 of 15.10.1997 “establishing detailed arrangements for the implementation of Council Regulation No. 4253/88 as regards the financial control by Member States of operations co-financed by the Structural Funds”.


Draft Legal Acts:


1.      Draft Operational Guide for PHARE 2000 ESC Funds, drafted in 2001 by the twinning partners of the PHARE Special Preparatory Program, in cooperation with the Lithuanian Ministry of Interior and the Lithuanian Ministry of Finance.


2.      Management and Control Systems Audit Manual for the Structural Funds / Financial Controls in the Member States, European Commission, DG “Financial Control”, 12.05.1999.


3.      National Development Plan for 2001-2003, draft, the Lithuanian Ministry of Public Administration Reforms and Local Authorities, 2000.


4.      National Development Plan for 2000-2002, draft, the Lithuanian Ministry of Public Administration Reforms and Local Authorities, 2000.


5.      Work Procedures Manual for the SAPARD Programme, draft, the National Fund Department, the Lithuanian Ministry of Finance, 2001.




1. “Lietuvos Rytas” (Engl. – “The Morning of Lithuania”), a daily independent newspaper, 1999, 2000, 2001, 2002, 2003 various issues.


2. “Respublika” (Engl. – “The Republic”), a daily independent newspaper, 2001, 2002, 2003, various issues.




No special interviews were conducted for this paper. However, previously collected interview material was used. Interviewees included:


1.      Mr. Grybauskas, A., Deputy Director, Regional Development Department, Lithuanian Ministry of Interior.


2.      Mr. Gudynas, M., Regional Development Attache, Lithuanian Mision to the European Community.


3.      Mr. Krispinovicius, S., Head of Regional Policy Division, Regional Development Department, Lithuanian Ministry of Interior.


4.      Mr. Linartas, R., Head of EU Structural Aid Division, Lithuanian Ministry of Finance.


5.      Mr. Jensen, P., Deputy Head of Unit G3, DG ‘Regional Policy’, European Commission (as well as other employees of the unit).


6.      Mr. Matusevicius, D., Director of the Financial Control Methodology Division of the Lithuanian Ministry of Finance.


7.      The personal experience of the paper’s author, who worked as Head of the Regional Policy Coordination Division of the Lithuanian Ministry of Public Administration Reforms and Local Authorities in 1999-2000, Head of the National Development Planning Division of the Lithuanian Ministry of the Interior in January-February 2001, and Administrative trainee of the European Commission’s DG ‘Regional Policy’ in March-July 2001, was used to ground the conclusions of the paper.



[1] This sentence is meant to indicate that there should be distinguishing between international relations and behavioural aspects at the civil servant level. This paper is concerned only with the second type of transactions. 

[2] This passage is based on Kickert, Klijn, Koppenjan, 1997.

[3] While it is not necessarily and not always true, it is often considered that autonomous government is better insulated from the private groups’ influence, and the insulation disallows the government to become the agent, and the private sector – the principal. However, it must also be recognised that in this case the government may misuse public funds for other reasons.

[4] Evans, 1992. 

[5] Moe, 1995, page 138.

[6] Although the International Monetary Fund is not within the scope of this research, it is included into this sub-section, as its problems are considered to be similar to the ones faced by the World Bank and the presentation of the IMF framework may be useful to objectives of the paper.

[7] Brett, E.A. (1985) The World Economy since the War, London, McMillan.

[9] Quotation of the Articles of Agreement of the International Monetary Fund,

[10] Official information of the European Union,

[11] Mosley, P., Harrigan, J., Toye, J., Aid and Power: the World Bank and Policy Based Lending.

[12] Gilbert, S., Powell, A., Vines, D., Positioning the World Bank, in Gilbert, C., Vines, D. (2000) The World Bank: Structure and Policies, Cambridge University Press, p. 39-86.

[13] Wade, R.H., Veneroso, F. The Asian Crisis: The High Debt Model vs. the Wall Street Treasury – IMF Complex.

[14] Wade, R., Out of the Box: Rethinking the Governance of International Financial Markets, Journal of Human Development, vol. 1, No. 1, 2000.

[15] Collier, P., Gunning, J.W., The IMF’s Role in Structural Adjustment, The Economic Journal, No. 109, p. F634-651.

[16] Chandrasekhar, C.P., An Alternative to Structural Adjustment, in Griesgrater, J.M., Guenter, B.G. (Eds) (1996) The World Bank: Lending on a Global Scale.

[17] Stiglitz, J.F., the World Bank at the Millenium, 1999, page F583.

[18] Avery, N., Stealing from the State, in Danaher, K., Yunus, M. (1994) 50 Years is Enough: The Case against the World Bank and the International Monetary Fund, South End Press, p 98.

[19] Avery, N., Stealing from the State, in Danaher, K., Yunus, M. (1994) 50 Years is Enough: The Case against the World Bank and the International Monetary Fund, South End Press, p 98.

[20] This sub-section is based on the results of both previous unpublished research (the Masters dissertation in the London School of Economics), supplemented with the current research of the author of this paper. A lot of materials were used from the author’s work in the Lithuanian Ministry of Interior, the European Commission, as well as studies in the London School of Economics.

[21] This position is advocated, among others, by Armstrong and Taylor, in chapter 12 of ‘Regional Economics and Policy’, 2000. The authors assert that full devolution of economic powers is not a realistic option.

[22] The period refers to 1998-2000.

[23] In 1999-2000, Lithuania and some other East European accession countries were about to squeeze all EU structural aid to the framework of national regional development policies. However, since these EU funds require national co-financing, the total share of national public investment that could have been ‘regionalized’ if these schemes succeeded could have totalled 50-70% of all available public investment.

[24] The approach was unsound because of several reasons. Firstly, it was against the EU structural funds’ rules to launch the country’s preparations for the EU structural funds on the regional basis. Secondly, it was against the economic logic to offer such huge amounts of aid of limited designation to the regions having very limited absorption capacities.

[25] The civil servants directly in charge of the Lithuania’s preparations for the EU structural funds new in advance that the implementation of such a policy scheme shall result in a failure. They, however, did not take any action.

[26] Article 1 of the Council Regulation No. 1260/1999 of 21 June 1999.

[27] Article 7 of the Council Regulation No. 1260/1999 of 21 June 1999.

[28] In Lithuania, the annual amounts received from these sources make up ~ 100 million Euro while the national budget makes up ~2 billion Euro. Thus the structural pre-accession support amounts to 5% of the national budget and a very significant share of its investment allocations.

[29] According to the EU, ISPA is a prototype of the Cohesion Fund, SAPARD – of the European Agricultural Guidance and Guarantee Fund (Guidance Section), PHARE Economic and Social Cohesion Initiative – of the European Regional Development Fund and the European Social Fund.

[30] All regions in which GDP per capita is less than 75% of EU average are considered eligible for ‘Objective I’ support.

[31] For example, in Roar Amdam’s article ‘Sectoral Versus Regional Planning and Development in Norway’, European Planning Studies, Vol. 10, No. 1, 2000, it is argued that in Norway a distinguishment is made between ‘narrow’ and ‘broad’ regional policy, the ‘broad’ one meaning the intended or unintended impact of sector development plans on regional economies.

[32] Regulation No. 1260/1999 laying down general provisions on the structural funds.

[33] In this regard, it should be noted that not only were actions limited to vocational training and business advice, but they had to exclude any measures of agricultural designation while most of the selected Lithuanian regions’ value added was related to agriculture. Moreover, these measures, having no or little demand, had to be significantly part-financed by both the national government and by the private business entity. The scale of the problem might be perceived when comparing all national allocations for such purposes in these selected regions with those that were to be made available from PHARE. The difference was up to 100-200 times!    

[34] Those parts related to the European Regional Development Fund and the European Social Fund only; the other EU structural funds and the Cohesion Fund were dealt with by other EU directorates and followed the national approach from the very beginning. 

[35] Unfortunately, the manuscript if Kalman, J, 2001 is silent on how many regions are actually receiving PHARE support.

[36] Popa, A. et al, page 11.

[37] Besides oral recognition expressed during various meetings in late 2000, the failure was also acknowledged during the twinning seminar on 15-16 March 2002.

[38] Under the initial provisions of the Lithuanian PHARE ESC, 14 million Euros were allocated just for business consultancy and vocational training of NON AGRICULTURAL DESIGNATION for three most agriculturalized Lithuanian counties. Not only did these amounts 50-150 times exceeded similar governmental aid in previous years, but business entities were expected to contribute 20-50% to the total expenses – something that they were not going to do according to unofficial surveys.

[39] Similar forecasts and complaints were also coming from other East European ministries.

[40] For instance, in Lithuania the Regional Development Agencies were set up in each county, with the expectation that they will be the key players in the management of the EU Structural Funds. Soon it appeared that they may have no role in this function.

[41] Lasuen, 1972, page 20.

[42] Lasuen, 1972.

[43] According to Lasuen, 1972.

[44] Armstrong, Taylor, 2000.

[45] Higgins, Savoir, 1995, page 76.

[46] Higgins, Savoir, 1995.

[47] Higgins, Savoir, 1995.

[48] Higgins, Savoir, 1995, page 44.

[49] Higgins, Savoir, 1995, page 58.

[50] Friedman, 1972.

[51] Lasuen, 1995, page 36-37.

[52] Armstrong, Taylor, 2000.

[53] Rodwin, 1972, page 13.

[54] Armstrong, Taylor, 2000.

[55] Armstrong, Taylor, 2000.

[56] These approaches were presented by Armstrong and Taylor as options for combating unemployment. Although other indicators (not necessarily unemployment) can show region’s backwardness too, the proposed measures are focused on the view that unemployment is the major indicator of regional development.

[57] This presumption is based on the author’s own experience as Head of Regional Policy Coordination Division in the Lithuanian Ministry of Public Administration Reforms and Local Authorities.

[58] The author of this paper is not aware of more than 3 or 4 cases when somebody was accepted to the Lithuanian Ministry of Public Administration Reforms and Local Authorities on the basis other than protectionism, in 1998-2000.

[59] In Lithuania, such cases included the demands to allocate a significant amount of PHARE development related funds for renovation of police office premises, to allocate specific amounts of money for ineligible purposes, specific reasons, etc.

[60] Such cases are very numerous in Lithuania. In 1999-2001, a number of Prime-Minister’s and Government Chancellor’s decrees were issued requiring to investigate the lack of progress or various accusations of NGOs and sector ministries. Even if the case could have been proven, such decrees used to demotivate the staff and to increase the burden of administrative duties. In some other countries, the staff in charge of the funds was ultimately fired (Poland, for example).

[61] This was the case in Lithuania.

[62] This sentence has nothing to do with the presently working employees of the DG ‘Enlargement’ and should not be associated with them.

[63] In Hungary and Poland, the whole personnel in charge of PHARE either left or was dismissed in late 1990s. In lithuania, ALL personnel in charge of PHARE ESC and preparations for the EU aid left in 2000. Personal conversations conducted by myself with the personnel in the Lithuanian Ministry of Finance and Ministry of Interior suggest that the willingness to leave the service is still high.

[64] While examples are many, the best example in Lithuania was in late 1999, when the Governmental European Integration Commission approved the draft National Development Plan for the EU pre-accession funds without reading it (it was distributed only 2 days in advance and was not even translated to the Lithuanian language), despite a lot of critical remarks. The reason of approval was a referral to an e-mail opinion of Mr. J.Trestour, then Head of Unit in the European Commission’s DG ‘Enlargement’ saying that ‘the plan is good’.

[65] The circumstances were that the DG “Enlargement” officials were rarely willing to negotiate and the attempts to refute the suggestions could well have resulted in serious consequences, such as the rejection or delays in the approval of the aid, or the threats to do so. Being unaware of this (or disbelieving in this), decision makers and interest groups frequently required things that the EC would never accept, but tended to blame the national civil servants in cases when the EC was unhappy with some position or provisional result.

[66] As Head of Regional Policy Coordination Division of the Lithuanian Ministry in charge of regional development, I can assert that the scale of problems that will be caused by the acceptance of these policy demands was well understood by myself and other colleagues in the unit. During my discussions with civil servants from Poland and Hungary, it was revealed that they have similar problems.

[67] This presumption is made on the basis of the personal experience of the author of this paper who was himself in charge of the Lithuanian preparations for the EU structural funds.

[68] See Raagmaa, 2001, for the justification of the role of a leader in the process of economic transformation.

[69] However, the specific EU aid was provided also for adopting the civil service legislation and, according to the sources in the European Commission, it was the EU that tried to convince the Lithuanian authorities to adopt the Civil Service Act, even though this was not a part of the EU acquis and generally not of EU’s concern. This influence may, however, not be regarded as negative; it may be considered a soft policy advice – probably a useful step in the development of the stable and reliable civil service in the country. 

[70] The official information of the World Bank,