The new School of Economics at the University’s Faculty of Business and the council of the world’s leading economists in Tbilisi

FROM THE REDACTION

In October Georgia’s economic community had very important guests, the conference organized in Georgia by the Caton Institute and the new School of Economics was an important event.

Up to 140 delegates from 20 countries took part in it. Among the participants were the Nobel Prize winner Vernon Smith with the subject – “Property right and taxation”, the Institute’s Director Tom Palmer, the President of the new School of Economics Paata Sheshelidze, professor Andrei Ilarionov, representative of the US Private Property Center John Salivan, a representative of the European Bank for Reconstruction and Development Joomart Otorbaev and others.
The conference which, along with American, Canadian and European experts, was attended by the representatives of Serbia, Russia, Croatia, Iran and Iraq, was considering freedom, trade and peace issues. The main subject was the problem of creation of an open market, protection of free trade and property rights and the necessity of economic globalization. Stivenson’s lecture, which considered the genesis of the origin of free trade and the problems of modern trade policy, was devoted to it. The matter also concerned the experiment carried out by them in the world, a person’s business behavior, benefits of free market to the society and advantages of liberal economy.
Vernon Smith won the Nobel Prize in 2002 for studies of alternative market mechanisms and application of laboratory researches as an instrument of empirical analysis. According to the experts, awarding of the prize was a formal act in birth of new scientific branches. Scientists that represented economic psychology and experimental economics became Nobel Prize winners. He is a representative of the Libertarian school and an apologist of open economy and trade.
Smith was born on 1 January 1927 in Kansas. His father was an engineer on the railway and mother – a housewife. They had a poor life, that is why he learnt at a school where several classes had their lessons in one room. At the age seven he started to work in a drugstore and was distributing drugs in the whole town for 50 cents a day.
He studied in the evening and two years later he managed to pass the secondary school’s examinations without attending lessons. When he was 16 he worked for Boeing and was studying at the same time. Thus, he graduated from a higher educational institution in parallel regime and was invited to Kansas University and then to Harvard, in 1961-62 he studies at Stanford and here he begins work on the “experimental economics method” and, together with Bob Heather (anthropologist) publishes a monograph “On Disappearance of Pleistocene”. It can be said that he laid the foundation for experimental economics and published Handbook of Experimental Economics, which contains materials on individual behaviour in the economy, market structure research, coordination ganes, models of financial markets, etc.
Starting from 1974, he spent 26 years at Arisona University, then he started work at George Mazon Universiy, where he received the Nobel Prize* for the development of economic problems.
His lecture in Tbilisi had to do with the experiment in the sphere of trade and resource distribution, economic interrelation of the countries with different levels of development and wealth and the role of free trade. The Nobel Prize winner looked very young in his grey wig and you may have not recognized him at all if you were not told that is was Smith. He was thoroughly speaking about his experiment, which mainly had to do with human psychology and the fear towards free trade and open economy. It is very important for Georgia today, since this fear is serious here. Any minute you can hear “Georgia is being sold”, “do not sell – it is a strategic unit”, “introduce new customs taxes to protect the market” and other similar statements. This is the evidence of the fact that mentally we are under the influence of planned economy, that is why his lecture and the content of this research were serious and important. I would say that our generation is happy since it has an opportunity to listen to him, and we have to thank Caton Institute and the new School of Economics Georgia for that.
Caton Institute was founded in 1977 by Edward Craynon. It is a private non-commercial research organization. The Institute got its name in the XVIII century from “Caton’s letters”- the letters written by John Tramchard and Thomas Gordon that dealt with political freedom. The series of these letters were published with the signature “Caton” in honor of Caton who protected the Roman Republic from Julius Caesar’s power. “Caton’s letters” had a great effect on formation of philosophical ideas that were assumed as the basis of the American Revolution. It protects traditional Americans principles – distribution of powers, personal freedom, free country and market. The Caton Institute aspires to broaden the framework of social and political discussions and involve educational and social stratums in these problems. The Caton Institute is implementing a program of publications that contain the whole spectrum of political issues. Forums and conferences having to do this political problems are constantly held at the Institute; at the same time Caton Institute has held a number of conferences in London, Moscow, Shanghai and Mexico.
Within the framework of the conference the dean of the Institute of Business and Economy, Akaki Tsomaia, together with the university’s leadership and the new School of Economics, held open lectures at the university for students and professors.
On October 27, the President’s advisor Mart Laar, the former Prime Minister of Estonia – a doctor by education and the author of Estonian reforms, made a report. He pointed out that the agrarian Estonia went through economic sanctions and blockade before. However, after a 3-4 years’ difficult transitional period, its export vector is completely orientated from Europe and now it is one of highly developed countries of Europe. In his opinion, Georgia should reduce public expenses and make economic growth its priority. For this purpose, structural changes in the economy and promotion of private business is necessary, from the viewpoint of both simplification of regulation and creation of independent court.
This subject was continued by Mr. Andrei Ilarionov who was President Putin’s advisor for five years and now works at Caton Institute (see www. nes.georgia.org). He made the analysis of the dynamics of economic development in different countries, explained the secret of the “Asian miracle” and the success of European champions and pointed out the decisive role of cutting of public expenses. Reduction of the tax burden and simplification of regulation was mentioned as the basis of economic growth. It was a key to success and Georgia should not invent a bicycle anew if it takes over the international experience. The subject was continued by Kakha Bendukidze and fully agreed with his friends. He spoke on the state’s priorities in the reformation of the healthcare and pension sphere, which ineffectively disposes of the billion budget, and the project of complete reorganization in both pension system and public assistance. He said that, in spite of the inexpert resistance of some MPs, the government is going to unite the 20% social tax and the 12% income tax, and gradually reduce it in total to 12-15%, which will be a serious contribution to business development. On the other hand he pointed out that cutting of public expenses has already started and in the budget of 2007 military and security expenses are comparatively lower in comparison with the previous years.
“It was a serious week for students and not only for them, since they saw the problems of Georgia’s economy from the viewpoint of the world economy’s realities and the necessity of the fact that we still have to learn much from the West and work hard since only a wish is not enough”, – said Akaki Tsomaia in his conversation with us.