REVIEW OF

Monograph “Political economy of post-communist capitalism and Georgian economy” (Tb. 2002, 526 pages, scientific editor – prof. E. Mekvabishvili, reviewers: prof. T. Beridze and prof. I. Meskhia) by V. Papava, doctor of economic science, corresponding member of the Academy of Georgian science, professor.

The scientific work reflects V. Papava’s lengthy, prolific scientific-research work and successful activities in different hierarchical levels of the state structure. According to prof. E. Mekvabishvili, editor of the book, “it attracts to discussion his colleges-scientists, politicians and all thoughtful people who are really interested and worried by the future fate of our country”.
The work consists of introduction, 21 chapters and more than 70 paragraphs with a list of bibliography in different languages covering 62 pages. The work has contents and abstract in English language.
We should single out some of the many values of the work:
1. The work represents complex purposeful research of the principal problems of appearance, formation and functioning of transition economy (and not only transition economy). All of the elements have practical significance. Interests towards the work becomes stronger due to the fact that it also considers post-communist transformation with the prism of organic unity and dialectic contradiction of social-economic and political-ideological, ethic-religious and ethnic-psychological aspects.
2. The author performed great work on the search of significant or less significant Georgian and foreign literature the number of which exceeds 1000. All this indicates at the author’s great energy and conscientiousness setting an example for those who think they are the only ones to start and finish research of this or that problem.
3. The work contains original ideas, prescriptions or postulates. Some of them are theoretically corroborated, so the only thing we can do is to agree to it. The other part is open for disputes and considerations. The author seems to attract us to discussions without any ambitions and claims.
We should hereby mention that the work contains terminological novelties of transition economy with interpretations. For example, these are terms like “post-communist capitalism” that, according to the author,
“indicates at the nature of real society that does not fit into the frames of the capitalistic classic notion or its different famous theoretically generalised models” due to the existing necroeconomy (p. 25). The author says it is time to introduce post-communist capitalism. One of the most important purpose of the given work is research of the essence of post-communism capitalism economy” (p.43).
The same can be said about state monopolistic federalism the status of which prof. Papava grants to Soviet state drawing parallel with the thoughts of Richard Ericson, Columbia University professor, who characterises the post-Soviet economic system of Russia as “industrial federalism”.
The name of the book itself – “Political economy of post-communist capitalism and Georgia” – is an example of innovative and creative approach to the object of research. The author has had the idea of creating the book after he has collected a sufficient number of publications and research that, in general, represent single monographic study of theoretical and application problems of post-communism transformation of economy, which formed basis of the reviewed book.
4. Proceeding from the difficulty of multivariable research problems, the author is well aware of the fact that reader might not agree to ideas contained in the book and, therefore, as the author says, he will receive constructive critical comments from them that he will consider in his future scientific work.
5. The author’s reflection on the terminology of transformation and, in particular, on widespread terms – “economy of transition period”, “transitional economy”, etc. is completely acceptable. These terms are quite vague and unclear as one might not understand what kind of transition is implied. Search for generalised notion of “transition period” and “transition economy” is, as a rule, non-constructive, as it brings no use either from theoretical or practical point of view.
6. One of important achievements of the reviewed book is that it gives plausible answer to the way, methods and tools of implementing reforms during the lengthy post-communist transformation subsequent upon the “Shock therapy”. One of its possible variants is method of “social stimulus” economic reforms the theoretic basis of which is “Laffer-Keinz synthesis”, i.e. merger of the well-known mechanism of supply and demand stimulus.
7. The work contains comprehensive estimation of IMF activities, its role in the achievement of macroeconomic stabilisation, and post-communist transformation of economy on the whole; there is critical analysis of IMF activities – without the consideration of price-formation factors caused by political, methodical and methodological perplexity as well as with the aspects of mistakes stipulated by commonplace approaches, technical nature, abuse of competence and other factors.
8. We should note the author’s conception of political and economic consideration of shade economy based on the institutional analysis of post-communist transformation of economy.
9. The part of work devoted to the place and role of man, and in general, to the research of the model of human in economic system is of special interest. Yet, here the problem of change of post-businessman into an entrepreneur comes to the foreground. This requires a lengthy process.
10. Novelties and author’s original approach are observed in the analysis of the following problems: “Market equilibrium doctrine”, “Necroeconomy – phenomenon of post-communist capitalism”, “political and economic aspects of the privatisation of state capital”, “The fifth factor of production and the role of state in the modern economic system”. The work consistently considers multivariable and multi-situational positions; “dead economy”, i.e. necroeconomy that is explored by necroeconomics or necroeconomic theory, vital economy or vit-economy explored by vit-economist or vit-economic theory. We should note the author’s conclusion about the fact that state economic ability of state is fifth factor of production and that indirect taxes are basic incomes of state while direct taxes are derivative ones. Here we also find the conception of “dominating factors”; the author’s conception of “complete market” implying “market that is free from compulsory state taxation (or in any case, it will be equal to minimum) (p. 196-197).
We should also agree to the author’s opinion that corruption is a secondary event and that development of effective mechanism for limiting corruption is, in fact, impossible without revealing its economic reasons.
Another range of problems analysed by the author are related to the improvement of tax system and politics in post-communist conditions. Such issues as indices of tax department, customs service, tax corruption as well as integrated indices of tax corruption, tax and payment corruption are calculated here on the basis of author’s mathematical formula. Then there are results of calculation and practical conclusions. Their implementation would contribute to the growth of budget revenues.
Such important issues as tax policy and Laffer effect, tax federalism models, inflation phenomenon, external trade and free economic zones are considered in close interrelation with the mentioned problems. Among them author’s interpretations of Laffer curve alternatives, “doctrine of tax separatism”, “doctrine of tax agreement”, etc. are of utmost interest. We also think that the author is justified in criticising IMF positions with regards to imposing VAT on agricultural production and support of agrarian sector. To author’s opinion, imposition of new taxes is not justified both in the agrarian sector of transition economy country and in developed ones.
The part of work dealing with the effect of inflation on economic growth focuses on the correlation of tight monetary policy and liberal policy. The author concludes: “there is no argument for modern Georgia that would give advantage to liberal monetary policy as compared with tight one” (p. 291).
We should also note and accept the author’s thoughts and conclusion that there is no use in arguing about the future of Georgia, whether it should be industrial or agrarian. The important thing is not the specific gravity of agriculture and industry in Georgian economy, but the fact that priority should be given to machine production in any sphere of economy. The world practice reveals that post-industrial society characteristic of developed countries is achieved only through passing the stages of industrial society.
The monograph pays due attention to the importance of free economic zone for Georgia. It is assessed negatively. To author’s mind, the perspective of free economic zone for Georgia can only be viewed with regards to free economic regime built upon scientific-technical zones and functional principles.
Naturally enough, the work attaches important attention to the consideration and analysis of the correlation of Georgian-model economic reform with Polish one, problems of Georgian economic strategy, Georgian international economic function, etc. This part of work contains such meaningful expressions as invisible “dictate” (unsuccessful attempt of imitation) non-economic policy of non-economists and Polish economists in the role of “home priests”, economic attraction from romanticism to revanchism and the function of country, “new economy” and the Russian scenario of dollar collapse, the attempt of synthesis of “non-economic politics” and “economic politicisation”, etc.
To say nothing of many positive features of the work, I will make some recommendatory comments.
1. I think that nowadays recognition of capitalism as economic system, moreover, in developed countries, is disputable. I do not support Marxist anti-human theory of development in accordance with social-economic formation of society with capitalism in the fourth stage and socialism in the next one. Nor I argue about the possibilities of retreat. I think that from Marxist or non-Marxist point of view, capitalism has depleted itself. It has denied its existence and grown into a new property. This can be observed in the fact that, for one thing, Marxist interpretation of capitalism based on private property and exploitation is not dominating and, for another thing, political, social and economic system is presented in the form of capitalism when property as well as capital archives are controlled by private persons. There is a completely different situation in world developed countries with their modern social-economic essence being defined as socially-oriented mixed economic system, i.e. post-industrialisation civilisation where not private, but community property being a criterion of social stratification in society more and more loses its definite force; intellect, education and knowledge level become decisive. To make it short, the real trend of socialisation of important part of national economy has appeared following the transition to post-industrial society, i.e. there started the phase of evolution of business relations. The significant change in the national structure of property is seen in it that in the beginning of 21 century individual or private property has ceased to be a benchmark: for one thing, state sector has occupied a stable place in economy; for another thing, shareholder (partnerships, corporations), public (public and state) property forms have become widespread. On the one hand, organisational-economic forms have been established as systems for managing associations and diversified economic bodies and, on the other one, as macroeconomic state regulation of economy that will meet gigantic development levels of industrial forces. Its most important result is that modern mixed economic system has completely liberalised economic and social limitations.
As for the second variant – transition to “capitalism, i.e. market economy”, I think it should be given more detailed consideration as market economy is main, but still one side of mixed economic system and not an independently functioning whole economic system, which is a unity of market system and state phenomenon. Therefore, the both sides – market and state – are significant, i.e. the economic system does not exist without any of them, which determines the essence of mixed economy. Thus, we can conclude that the task of transition period is not formation of capitalism or market economy, but rather formation of socially-oriented mixed social-economic system.
I am completely sure that the author has an identical view, too, but the form of expression is traditional and widespread.
For another thing, after the comprehensive estimation of IMF activities in Georgia (both negative and positive) the author says: “We can conclude that the activities of IMF in Georgia are aimed at the development of the country, creation of stable financial bases for country’s statehood, improvement of state officials’ market cognition (p. 360).
It is, certainly, difficult to argue with a scientist or former high-rank officials, but the tragic thing is that reforms have been based on monetarist dogma in Georgia, which has proved to be a source of fortune for some person. Such monetarism as well as liberal economism is neither an economic theory nor real economic practice, but rather a fanatical dogma that is detached from reality and science. The economic mechanism that has been introduced in Georgia by IMF, has not taken into consideration Georgian economic reality, its basic national interests. Western economists that do not know the reality and specifics of Georgian economy, in fact, offer us a mechanic economic mechanism approved in many countries where economy and economic traditions are completely different from ours.
Second: Georgia has more than 2 million dollars’ external debt. Unfortunately, neither lending nor borrowing country seem to be interested what purpose this money will be spent for, i.e. there is complete chaos and anarchy in this sector. This issue is a black spot on the work of international financial-credit-currency organisations. Does this mean that they are more interested in enslaving the country, rather than promoting its prosperity and economic reforms.
Third: Under different pretexts the monograph seems to unambiguously deny the purposefulness of creating free classic economic zones due to the territorial principle of Georgia (p. 326).
This conclusion seems to be disputable to us and I think that a special forum of country’s leading scientist-economists should be held to discuss the issue.
Fourth: Author’s conclusion about the right choice of Western orientation in Georgia is also categorical. I would support this orientation provided it is based on Eastern values. For us both Eastern and Western values are organic and objectively essential due to particular geopolitical situation of Georgia.
Fifth: economics and economic theory are equated (economics, i.e. economic theory, is science that explores economy”, p. 151)
I do not agree with the author if he implies political economy by economic theory.
The matter is that economics is a descriptive, pragmatic science that, primarily, deals with practical results while political economy is an abstract science that explores economic categories and laws, causative ties between economic processes and events by means of dialectic methods. I will repeat the words of one of our colleges “There is the same tie between economy and economics as between physiology and genetics”.
Sixth: We think that on page 424 the author gives only a humble place to Georgia in the world community when he writes: “Economic function of Georgia…is stipulated by its location on this through-passage between Europe and Asia”.
The necessity of national economic ideology, essence and motive force of Georgia is not clearly observed in this work, either.
Seventh: There are some expressions and phraseology in the work to which I disagree: “political and economic mechanisms of corruption” (p. 200); “democracy is the worst control system, but the rest is much worse” (Cherchil); “Market is the worst way for realising profitability, but other ways are even much worse” (others) – p. 20; has shock therapy been applied in Georgia? (p.54) – I think it was not, there were only attempts. In the long run, we have received at best “maximal shock with minimal therapy” (and not “minimal shock with maximal therapy), at worse – “shock without therapy”; p. 404; opposition of the President of Georgia to the US President in 1991 is regarded as absurd extremist movement”; On p. 452 the author criticises the idea of national authorities about “state capitalism model”. To my mind, this idea would be useful for Georgian economy in the initial stage of transition period. The author hereby mentions “in 1992 reversal of Georgian economy started, etc.
The eighth work details almost all variants of inertia of privatised enterprises except one: expectations of new enterprise proprietors, i.e. fear syndrome: “What if new government comes and starts re-privatisation process”.
Ninth: In the positive features of the review we have mentioned “abundance” of bibliography as a positive trait. We have also mentioned that there are so many allusions to different authors that readers often find it difficult to make out whether the author supports or criticises this or that prescription.
Our comments are recommendatory, but not categorical, which does not understate the value of the reviewed work.