Trends and guidelines of economic development in Georgia (RESUME)

Nodar Chitanava

Economic crisis in Georgia acquires new features. First of all, it is of systematic nature. Main indicators of country’s socio-economic development have sharply changed during the period of reforms.

For instance, in 1999-2000 GDP dropped to 40%, industrial production dropped to 20% and agricultural production ? to 60%. It is noteworthy that in 2003 GDP amount per head made up about 10% of the world’s average indicator. More than half of population lives below the subsistence level. The external debt dynamics (50% of GDP in 2000) reveals that the country becomes more and more dependent on foreign capital. This year low level of GDP investments testifies to the fact that the technology base of economy remains unchanged. Minimal expenses for the development of science (0,2% of GDP, 2002) lead to the decline of intellectual potential. It is noteworthy that in 2002 indicator of human potential was 0,760 (while its limit value is 0,80).
Thus, main parameters of country’s socio-economic development testify to the dangerous nature of systematic crisis. Therefore, it is necessary to clear out and estimate reasons of crisis with the view to determining correct guidelines of economic development and quickening the process of averting the crisis as well as establishing an economic system with the great growing capability of adaptation to the globalisation processes and with resource potential of stable development, in general.
Guidelines and results of socialistic economy transformation
In the second half of the 80s, the issue of guidelines for the development of national economy became sharp in Georgia. It is noteworthy that Georgia tested five economic doctrines in the XXth century, for instance, doctrine based on the “net capital” theory. Since 1918 for the first time in the world socio-democratic principles have been developed in Georgia. Since 1921 the country faced a new phenomenon of Soviet economic ideology ? “NEP”. Since 30s of the XXth, economy has passed to qualitatively new principles, i.e. centralised planning and control system. In post-soviet period “Shock therapy” as a doctrine was obtruded upon Georgia. It is noteworthy that each subsequent doctrine was an alternative of the previous one both from conceptual-methodological and political-organisational viewpoint, which has certainly stipulated the contradictory (zigzag) nature of national economy transformation, neglect of economic regularity (neglect of initiative, competition and in general, economic freedom from political point of view), etc. Given the historical background of country’s development, in 1990 three approaches were developed concerning the orientation of national economy development. From official, imperial point of view the first one was based on the philosophy of “perestroika” and implied transition to market principles of socialist economy within the frames of the Soviet Empire (the so-called “net capital” based on production means as private property and self-regulation principle, as co-ordination mechanism). This process is presented graphically in picture 1. The second unofficial (informal) one was based on qualitatively different political philosophy and implied Georgia’s independence (withdrawal of Georgian territory from the Soviet Union borders) and transition to market principles of national economy (in the same model as offered by “perestroika” principles, namely: mass privatisation of state property, immediate dissolution of collective farms and other economic subjects, liquidation of state control system, etc.).
As far as we can see, the first and second approaches towards the orientation of economic development, in fact, proved to be identical implying transformation of socialist economy into private capitalist economy, i.e. economy characteristic for the classic capitalism of 20s of the XXth century.
From official regional point of view, the third one publicly announced as an official economic form of the Georgian government was based on the gradual (in stages, consequently) transformation of national economy into multistage economic system. It acquired a leading role of government control on economy: in transformation process it acquired the exclusive functions of legislator (development of legal framework for the new economic system), proprietor (orientation for multistage order) and managers (organizer, to wide extent) as well as the role of complex processes coordinator. In 1990 the Supreme Council of Georgia passed several principal resolutions on the formation of market economic system in Georgia, for instance, on the economic sovereignty of Georgia (the first hearing took place), on the occupation of Georgia by Russia in 1921. At that time the government passed several norms (establishment of co-operatives and collective farms in mountainous regions, provision of peasants with lands in certain regions, re-organisation of co-operatives, development of rent relations, etc.). Organisational, legal and economic grounds paved the way for the development of market principles. The model of the process is shown graphically in picture 2.
Thus, three guidelines of economic transformation (conceptual-methodological approach) were observed in the epicentre of Georgian historical development. How did the process develop?
In the 80s of the XXth century “perestroika” developed spontaneously under the influence of political romantism. It turned out to be the most complex problem in scales and qualitative characteristics without a historical analogue of it. In fact, among other possible variants of human development one model was elaborated. It was based on the clearly expressed ideology and rules of western (American) life. Weak ideas of Soviet authorities and insufficient scales of global thought, illusions about the all-mighty market self-regulation of economy (“free market” that does not exist in nature), dispute between state and economy, neglect of interdependence dialectics and downfall of Soviet economic system proved to be favourable grounds for the introduction of external ideology.
“Perestroika” based on the positions of eclectic outlook (transition to political and economic democracy) rather than on stable (detached from scientific logic) conceptual-methodological approaches quickened the complex and contradictory process of development in accordance with external scenario thus acquiring a spontaneous nature. These processes in one political socio-economic sphere promoted the development of two historical events. Movement for political independence started simultaneously in national republics. Naturally enough, the above-mentioned events developed widely in Georgia, too. Among the three above-mentioned variants of social (as well as economic) relations transformation, Georgia chose the second one. It supported the winning forces of the democratic elections held in accordance with modern standards within the Soviet area in 28 October 1990. The aspirations caused by the gained political freedom were so strong that mottos of political struggle were followed by historical slogans ignoring the special importance of economic role and simplifying the organisation of economic order. For instance, these were slogans like “We are ready to live on grass”, “Borjomi waters will help us”, “Private property is of utmost importance”, “State should not interfere in economy”, “Planning is foe of economy”, “Market is almighty, it will care for well-being itself”, “It is enough to provide peasants with lands for the country to get rich”, etc. The slogans look naive today (when a cart overturned, the road became better visible). However, at that time one of active components of the process significantly determined the vector of economic development and in fact, reflected population’s aspirations caused by the euphoria of society. It would be fair to say that after half a year’s analysis of its work the government changed its earlier approach into a qualitatively new (time adequate) and clear position. Mr. Z. Gamsakhurdia raised the issue of applying convergence (as conception methodology) in socio-economic development. Official policy was subjected to corrections accordingly. However, very soon it became clear that other political parties emerging in the field of activity were guided by their own logic. Purposes (lying in different interests, very often in the background of personal and national contradiction) that are subordinate to the great purpose and along with it other mechanisms of its realisation that match group interests sharply deform directions of main purposes in the historical crossroad. The same happened in Georgia.
Great goals need nation’s unanimous will, maximal activation of country’s material and spiritual potential, and regulation of transformations by one strategy. Unfortunately, nation, political forces, government and opposition did not prove to be ready for solving spontaneous strategic objectives in decisive stage and time. Nation’s will (formed during the battle for freedom) was shaken, national energy dissipated into ambitions of different political and maphia-clan formations. Desires for the protection of country’s freedom were changed by personal interests.
Given the background, there was coup in 1992. The theory of convergence and its author-government was discarded and rejected.
After the coup, the “provisional government” tried to quicken transition of national economy to “free market economy” (private capitalist economy) and what is more important, this task was solved by limiting traditional socio-economic functions of a state. In extreme conditions ministries were transformed into the so-called functional structures. In socio-economic process the “niche” of state was occupied by non-government structures (namely, maphia formations). The complex transformation process developed of its own accord. National interests were replaced by personal and group ones. Favourable conditions were created for the embezzlement of national wealth (criminality), oppression of human dignity (first of all, freedom) and neglect of cultural values. Such environment paved the way for the loss of territorial integrity (economic transformation process is presented in three pictures).
Given the chaotic background, some steps of the winning government of October 1992 elections were of principal importance. This testified to the fact that the government was in search for time adequate approaches. For instance, in 1994 macroeconomic stabilisation programme was passed. Elaboration of indicative plan for social and economic development started. Inflation processes could be regulated subsequent upon the introduction and strengthening of lari. Social orientation of economy was officially announced. Interest of state structures towards economic processes became stronger. State property was privatised, though spontaneously with obvious breaches. Implementation processes of international projects were prepared with great efforts. TRACECA, construction of energy corridor and formation of infrastructure related to it, active participation in the world integration processes testified to the fact that the government gradually realised new economic functions of the country.
Thus, contradictory (zigzag) nature of economic development processes, recovery and downfall trends of economy in different stages, transformation of its own accord and the will to implement co-ordinator’s function at some moments, market self-regulation or state regulation, fragile economy or protection of home industry, struggle against hide economy by declarative statements became obvious in the country. These stipulated the unique situation with economy being in systematic crisis and at the same time with there being objectively developing unity of favourable factors. Their activation made it possible to transit to qualitatively new trajectory in the shortest time. A coterie came into being. Declining economy seemed to function. Accordingly, social tension increased and acquired dangerous nature. Economic growth rates were high in usual conditions, but source of its calculation was low. Intellectual potential underwent degradation. In the present stage, the synthesis of all this is, mainly, political and socio-economic contradiction seen in two oppositional layers spontaneously formed in the background of quickened embezzlement of national wealth. On the one hand, these are “the new rich” and on the other one, “the new poor”: social (in form) contradiction between these two forces grew into the chronic phase of political (in content) and socio-economic (in form and content) contradiction. It is noteworthy that the reasons of this contradiction that appeared in a new environment (post-soviet area) and were remarkable for characteristic peculiarities (organisational, economic, moral, high level of inter-dependence, criminality level, etc.) are deeper than the society imagined. Mitigation of the existing contradiction to a certain extent is possible only provided an efficient market economic system is formed in Georgia. Unfortunately, economic policy of the country is yet unable to implement the task.
Thus, market economy-conglomerate as a historic-economic type is obvious in Georgia. It came into being due to incorrect conceptual methodological approach and now functions (as a logical result of mistake) with the features (to a certain extent, seeming ones) more or less characteristic for “wild capital” economic systems of Soviet socialistic, developed and developing countries. Uncontrollable aspiration towards earning money by any means (falsely understood motivation), tough exploitation of human resources (political and economic behaviour), decay of society’s moral foundations became, in fact, observable in economy (transformation process of economy is presented in picture 4). The state was unable to realise its role. Approaches of political parties did not exceed reading-book’s limits, private business became grounds for the formation of new oligarchy, and it did not undertake responsibility for driving economy out of crisis. Science gradually left social activity field, its “niche” was occupied by mass media (here lies one of the reasons for the obstruction in social progress). International economic and financial structures did not co-ordinate their recommendations for the country (liberal-monetarism model of economic reforms determined by neo-liberal globalisation principle) and did not carry any responsibility for the crisis in the country. In fact, we face unique situation when under the negative globalisation influence socio-political forces with developing outlook do not aspire to creating national wealth, but rather they look to mastering re-distribution mechanisms. Here lies the source of Georgian outlook and factor-condition for the deepening of country’s systematic crisis. As for external factors, the main thing here is negative influence of neo-liberal globalisation model (which disregards interests of sovereign country) upon economic and potential environment of national state. It is noteworthy that present economic policy lacks necessary social energy and control mechanisms for construction process.
As far as we can see, driving the country out of systematic crisis and accordingly, active development of Georgia’s subject role in globalisation processes is possible only by joint and purposeful use of both factors (internal and external). With this purpose it is necessary to activate (wake up) chiefly internal “dormant” factors.
The country faces a qualitatively new strategic objective to determine the strategy of transforming post-industrial society of market economy-conglomerate into adequate economic system on the time adequate conceptual-methodological basis.
The objective is the most difficult one and responsibility is great! As mentioned above, the economy of country came to a dead-end. It underwent the chronic phase of systematic crisis. Such is reality. Averting crisis requires non-standard approaches and therefore, use of influence mechanism upon the processes. We have two alternatives. We should first come out of crisis and take measures for averting crisis and breaking through dead-end (to avoid wrong development in the future). Both approaches have reasonable grounds as well as doubts. We think it is much easier to avert crisis, yet in the present stage of historical development with contradiction deepening in society determination of new economic development directions requires time. It is also possible that we can make a pause in strategic development, as, expectedly, orientation at misinterpreted democratic values would not become a stimulating force of transformation. Therefore, we do not consider the way progressive. The second way is more correct, moreover when we know that dead-end can be broken through. It is also clear why the locomotive of transformation processes slowed down. Its crew was not oriented at dead-end situations. Nor did it demonstrate relevant competence in quickly changing situation. The crew needs to be renewed and what is more important, it should be equipped with the knowledge and notion of using state regulation of economy (as such) in the given situation. This is science as well as art.
First of all, the country requires new economic policy that will be based on positive results of basic socio-economic changes (economic freedom, necessity of compatibility between market self-regulation and state regulation, profit maximisation and joint use of social justice principles, pluralism of property form, etc.) and aimed at a Georgian economic model appropriate to post-industrial society. We should recognise the following postulates for the basic principles of state policy:
– Freedom and order are compatible but this is not achieved automatically. State’s multilateral efforts and plan (programme) approach are essential for it. However, management is not an ideology, but rather generally recognised means for averting crisis and in general, means of development;
– Society should not serve market, but rather market should serve society. Determinant of market economy is competition. The exclusive function of state is creation of fair competitive environment. Public administration should become free from dosed influence of criminal ideology. Economic freedom should be strengthened by enterprise support mechanisms;
– Georgia should acquire the function of active subject in world integration processes (which will increase its role in the international profit distribution), etc.
One thing is clear: a country needs efficient and responsible authorities that would perform the functions of leaders in system transformation of social relations. This can be achieved only if the government will act in accordance with the famous paradigm: time adequate strategic vision, global thought, local action in the given social time in line with local conditions.
Georgia has strategic chance to elaborate complex programme of development by taking positive globalisation trends into consideration and by reasonably using still preserved intellectual potential in compliance with time requirements. Our institute set to elaborate such programme based on the conceptual-methodological research of the institute in 2002-2003.
The mentioned programme is envisaged for 2020, and it is not accidental. The country should know what, when and how it should take measures to improve populations’ life standard. This objective is not meant for a government of one generation only. Thus, we think that a country should have state national ideology, state’s socio-economic policy should be formed on the basis of its fundamental principles in a specific development stage.
The programme should fully reflect logical connection between the goal (improvement of life-standard) and its achievement (economic growth), between resource and organisational factors (organisational and economic provision of political goals). Way and means of complex activating of local natural-enterprise conditions, factors and reserves should be determined, which will significantly promote transition of internal resources’ mobilisation into pragmatic policy. The programme should deal with Georgia’s capabilities not only in the proprietary conditions, but also in the conditions of different combinations of main world development factors. It is necessary to determine recommendations concerning principles of geo-political doctrines, strengthening of country’s positions in the Caucasian economic area (demographic situation, life standard, national originality, etc.) as well as deepening integration in international economic, financial, informational, technological sphere.
The programme should provide answer to the permanent question on agenda about what economic system of Georgia should be like (system compatible with post-industrial society’s requirements that would be based on the synthesis of national phenomenon and progressive world economic experience) and how we could combine political, socio-political, socio-economic, psychological and organisational interests for providing safety of man, state and society. The programme will become basics for the estimation (high level of transparency) of country’s macro, megaeconomic and regional development strategy, which will make the state (government) provide necessary impulses for economic development and act not by reading-book’s dogmas, but rather by reality (practice) and by programme transformation objectives in favour of society.
By 2020 indicative plan of socio-economic development (5-year, one-year) is state tool for the realisation of stable and safe development programme in the country. It should be based on the “new indicative planning” developed by the institute. It would be advisable for the Parliament to consider indicative draft plan along with draft budget. It would be also advisable to make indicative plan of socio-economic development at the level of regions.
Time will, certainly, bring about appropriate changes in the above-mentioned ideas and approaches of economic development. The main thing is that society and in particular, science keep abreast of time.