Monday, September 18, 2023

Member Blog: David Zilberman

 Learning about struggle, hope, and pride visiting Vilnius

My family came from Vilnius – migrating to Israel 200 years ago and settling in Jerusalem. I’ve been aware of Lithuania, a basketball powerhouse that beat the US at the recent World Championship. I have always been curious about the place and was very happy when invited to help organize and participate in a conference titled “700 Years to Vilnius: Creating a Better Future in a Turbulent World”. The conference took place on September 7 and 8, 2023.

Vilnius has had its moments of glory and pain. During its heyday in the 14th century, it was the capital of Great Lithuania, encompassing much of central and eastern Europe. Since then, the city has been under several occupying forces and suffered extensive destruction during the Second World War. With the demise of the Soviet Union, it became the capital of an independent Lithuania in 1991. I was aware of the progress of the Baltic states since independence but was amazed by the beauty of the city and its successful blending of historical estates, restored castles, and modern structures. The conference host was Mr. Rolandas Valiūenas, an entrepreneurial lawyer who has developed a wonderful private museum in his house. He and my close friend Professor Avishay Braverman headed the organizing committee. The conference included political statements by major policymakers and several sessions on major topics.

The Challenge of Establishing Democracy

The first part of this was new to me. I’ve never attended a conference with three prime ministers and a president. The lead-off speaker was the Ukrainian premier, who elected to speak through Zoom. In his talk, he emphasized his commitment to winning against the Russians and the need for continuous aid to accomplish this task. He reported that while the war is going on, his country is conducting administrative reforms needed to attain membership in the EU. He was followed by the current and two previous Lithuanian premiers and the current president. They suggested that Western Europe and the EU are beacons of hope for the Baltic states and Ukraine, who suffered for decades under Russia’s bootheel. They, and other Lithuanians I met, seemed to cherish the personal and economic freedom they are experiencing under capitalism, with a better economy and quality of life. The president and current premier were quite proud of Lithuania’s rapid growth since independence. The GDP in 1994 was 40% of the EU average; now it is 90% and still rising. Much of that growth was due to support from the EU, but help is declining as the country grows, challenging Lithuania to sustain its growth without external support.

In the next session on the future of democratic capitalism, Martin Wolf, building on his insightful article in the Financial Times, suggested that this system of governance is fragile. Financial capitalism brought freedom and prosperity to many, but the contradiction between capitalism, which is global, and democracy, which tends to encounter local challenges, may lead to a crisis. Recession and low growth, increasing inequality, and alienation among classes may lead societies to surrender to the temptations of demagoguery, leading democratic regimes to dissolve.

Wolf believes the global system is quite vulnerable, as charismatic strongmen and nationalistic fervor may seduce countries, while climate change causes havoc and threatens social upheaval. I share his concern about the vulnerability of democratic capitalism. In particular, I worry what may happen if Trump is reelected and if the coalition of orthodox and settlers continues to control Israel. In a related topic, I like Wolf’s pragmatism. He would have preferred the US carbon tax to address climate change. Yet, he appreciated Biden’s new climate strategy (using imperfect means [subsidies] only available to American firms) because it’s important to start large-scale efforts combating climate change rather than ignoring it. I believe eventually that the time of carbon tax will come after countries exhaust other options. Professor Colin Mayer from Oxford University suggested that the pursuit of profit by corporations without regard to social implications is a danger to society and cannot be sustained. Therefore, corporations and their executives must be liable for their misdeeds, and controlling externalities from economic activity is a major challenge and responsibility of effective governance. These talks highlighted the challenges of sustaining peaceful democratic capitalism. Countries must pursue growth while addressing environmental challenges, building a social safety net, and allowing freedom of opportunity. Nations must maintain free and fair trade and establish agreements to protect the common environment while maintaining social safety nets (mechanisms that protect citizens against severe economic hardship).

The Transition Towards Sustainability

In the session on natural resource management, we learned from Saulius Adomaitis, an energy expert, that Lithuania sought to reduce dependence on Russian natural gas by building a facility to import liquified natural gas from the US and elsewhere, thus overcoming the natural gas crunch suffered by other countries. He suggested that, despite the emergence of renewable energy, Europe will remain addicted to fossil fuels for a long time. One solution that can reduce this dependence is nuclear energy, despite its risks and other problems. Ivan Glasenberg, the former CEO of Glencore (a major extraction company), came to similar conclusions. Many minerals required for transport electrification, like cobalt, nickel, lithium, and rare earth elements, are scarce and controlled by developing countries with minimal rule of law. Western companies tend to avoid such countries, and the future of the supply of these materials remains uncertain. Thus, to address climate change, it is essential to develop new technologies that reduce dependency on these minerals and increase the use of nuclear power. Dan Kaufmann addressed one of the main challenges of the countries controlling resources – bad governance and corruption. He reported on a new methodology to measure the multiple dimensions of governance, including voice and accountability, political stability, rule of law, regulatory quality, and absence of violence. His quantification of governments of different countries identified some extremely well-governed countries like Denmark, demonstrated that even the US has its governance issues, and showed that many of the countries in control of minerals have bad governance, where predatory interest groups frequently capture policymaking. The session suggested that resource scarcity and bad governance are major challenges to transitioning from fossil fuel to electrification.

The Bioeconomy and Supply Chain

We also had sessions on the bioeconomy and supply chains. Justus Wesseler explained that the bioeconomy aimed to expand agriculture and renewable natural resource use from food and fiber production to chemicals like fuels and pharmaceuticals. The new developments in biotechnology are expanding the capacity of the bioeconomy. Europe has a bioeconomy policy, and Justus developed measures of this bioeconomy and documented its contributions to multiple social goals, including climate risk mitigation. However, he noted that European policies that envisioning expanded organic farming and, to a large extent, banning many biotechnology applications, are counterproductive and reduce our capacity to deal with climate risks. The previous discussion of energy suggests the important role of biofuel and other bioscience-based activities in mitigation and adaptation to climate change. While Europe puts itself at the front of effort against climate change, its ban on nuclear power and agricultural biotechnology have reduced its own capacity to address global warming risks. Professor Giedrė Matuzevičiūtė is a bioarcheologist who studied food systems over time. She suggested that crops like millet, which have been used extensively in the past in Europe, have good potential for a future with climate change and resource constraints. She also suggested that some of the genes of millet and other traditional crops can be used with modern biotechnology to improve the resilience of crops against pests and diseases.

Building a strong bioeconomy requires continuous innovation and introduction of new products. I spoke about the importance of supply chains with innovations and products that implement them. Economies need research institutions and a vibrant intellectual exchange that leads to innovations, new supply chains, and business circles. Establishing supply chains to implement innovations is a challenge that requires effective design, creative financing mechanisms, and the capacity to adjust to shock. Algimantas Markauskas spoke about his successful biotechnology company that Thermo Fisher took over and is a demonstration of Lithuania’s capacity to produce world-class biotechnology companies and knowledge products. He emphasized the importance of industrial leaders recognizing market demands, controlling expenditure, and continuously improving their products.

Looking for the future

The conference celebrated the major achievements of modern Lithuania. People are much better off, the economy boasts very successful companies, including IT and biotech, and it has built a lively and apparently robust democracy. Lithuania is now among the 30th-best countries in the world as measured by multiple indicators of quality of life, but it aspires to be in the top five with countries like Denmark and Sweden. Given the country’s lack of resources, it must invest in research and human capital. In the last session, we discussed how to build human capital. Professor Braverman told us how he led a process that uplifted Ben-Gurion University in Israel to achieve academic excellence and become a regional development center in the desert. It requires establishing standards of excellence and obtaining public and private resources to recruit and promote talent, build facilities, and support students. Lithuania has fine universities, but I believe there is a need for a world-class university that will be a magnet for people in the Baltic, Ukraine, and other nations between Moscow and Berlin. Vilnius may pursue this challenge. The constraints on public resources suggest that some affluent citizenry may contribute to building such a center (which may cost billions) and thus establish a legacy. As the baroness of Dulwich Alison Wolf emphasized, the key to excellence of human capital is building skills across the board – from kindergarten to college – and empowering individuals with varying capabilities. Because of the labor intensity of education, this requires both innovation and creativity to reduce cost and an across-the-board, nationwide commitment to finance educational excellence.

I left the conference appreciating the major achievements of Lithuania and further believing in the importance of freedom and democracy in Eastern Europe. I gained more appreciation for the challenges of establishing democratic capitalism and a prosperous civil society. It requires an enlightened government and a capable and generous citizenry – people who recognize the importance of public goods and contribute to establishing them.

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