ROLE OF STATE IN MACROECONOMIC REGULATION FOR THE DEVELOPMENT AND SOCIAL STABILITY OF THE COUNTRY

dr. D. VEKUA

Achievement of social agreement and stability is one of the most important strategic tasks to be solved by Georgia in the future.

Strategy of social stability should, first of all, be based on the driving force of macroeconomic transformations in the country and, what is most important, all positive results should be used, which is connected with the motivation of using this force.
Given the present situation in the country, this task cannot be achieved unless the state role strengthens (as macroeconomic regulator) in the quick realisation of social stability and particular processes of economic growth.
The question about the limit in state and market relations is a subject of constant debate and consideration, though one thing is clear to everyone: the past cannot become a variant acceptable for the future as market relations have no alternative.
The function of macroeconomic regulation should take into consideration four priorities along with multitude of other factors.
1. Aversion of budget crisis;
2. Necessity to provide government aid to citizens that lost source of income (unemployment, temporary or stable employment);
3. Reasonable policy of privatisation in the country;
4. Social justice principle in the sphere of distribution. Without this principle the market alone will not be able to accord purposes of some citizens with national interests.
Many well-known specialists ask the question: “Should this policy be in harmony with social justice principle?” There is no unambiguous answer to this question as legal notion contains different contents. Ideas change along with the development of society. The society is formed under the influence of difficult social and cultural development. However, one thing is clear: citizens need state not only for physical security, but also for public assistance.
The most important task of social stability is a package of measures that would balance revenues and expenditures of state and monetary policy, limit “explosive” increase of social sector of budget. Recent years’ experience reveals that due to these problems governments in post-soviet countries (as well as in Georgia) tried to solve demographic and social problems within the national economy by means of distributing money – transfers and subsidies – in social sector.
Yet these events are still to be studied. It is necessary to make final accent on the increase of social welfare.
Achievement of macroeconomic stability will be impossible unless a tangible effect is made from the viewpoint of economic growth. That is why monetary and budget policy should be aimed at the preservation of the current state of inflation (within 5%).
Stability of price and currency rate should be one of important pre-conditions of stable and steady development. Strict and reasonable monetary and budget policy should promote this process. Money supply growth should correspond to purposes of price stability, which, in its turn, will be promoted by rejecting long-term credits of the National Bank for financing budget deficit.
Budget policy should correspond to both long-term and average-term purposes. It will promote preservation of macroeconomic stability and meet demands of poverty reduction programme. Budget crisis should be averted by means of improving revenues mobilisation. Reforms in tax service and new cardinal reforms in customs should promote this process.
In our country as well as in the whole world there are different debates and opinions about active intervention of state in social-economic processes. The so-called Marshal plan and Keinz’s theory of state regulation became subject to revision; yet a question arises about what is the optimal limit of this regulation and the extent of state participation in the regulation of social life. There is no ready-made prescription for it and therefore we think that everything depends on a particular country, historical development, geopolitical state and other multitude of factors issuing from individual specifics of a country.
Social stability in post-soviet countries is unimaginable without active state intervention though it is not ruled out that government intervention might bring some use to society. In this case, scales of failures will be no less difficult than problems common to market economy. The task is that processes of influence and state structures should create a motivated environment and background that will cause state structures to improve social state of society. The essence of changing these accents is that state should not direct vector of its measures at what it wishes to do, but at what it can do in the particular period of history by optimising activities of institutions and state structures. Accents of institutional improvement can be conditionally presented as follows:
– Reform in state control;
– Structural reorganisation;
– Well-defined determination of tasks, purposes, rights and obligations;
– Redundancy of bureaucratic apparatus;
– Optimisation of salary (on the basis of reorganisation);
– Purposeful programme financing;
– Implementation of measures aimed at overcoming corruption and shadow economy.
With share of public sector in Georgian economy being still great, it is necessary to promote investment activity not only in private sector, but it is also most important to attract investments and provide financing of public sector. The analysis of situation in this sector reveal that there are not only technical problems, but also those connected with poor management. That is why bankruptcy and privatisation is necessary leading to the transfer of enterprise to profit-oriented management.
Limitation of state intervention will make for the economic growth. The number of licenses, permissions, certificates and other administrative barriers should be changed minimally. The rest licenses should be issued in the conditions of complete transparency, which will help to minimise cases of misfeasance. If we study activities of ministries in this direction, we will see there is a great attempt to intervene in economic control process in different ways (it is, mainly, confined to control form).
The present control system in the country is evidently uncontrollable with many public, interdepartmental and departmental structures, audit firm and private auditors having control rights, which results in endless and negative mistakes. Multitude of controlling agencies creates favourable conditions for bureaucratic arbitrariness and paves the way for the development of corruption.
Today, the current social security system failed to adapt to the economic environment and meet requirements of modern market economy in the conditions of destruction of old economic system and formation of new ones. In this situation state turned out in opposition to the economy of country. Because of this it becomes more and more difficult to provide population with small pensions and aid. Salary, being an object of taxation, loses its social and fiscal function. Deficit of national budget increases, motivation of high-paid employment and personal interests in improving production technologies reduce.
The current legislative and institutional inconsistency in the social security sphere, approximate indicators of birth and death rate, increase of population’s middle age, mass unemployment and migration are the most important issues that require serious analysis with the purpose of providing new recommendations for the development of social insurance system in the country.
It is clear to everybody that the present pension system in Georgia has no future. A conception of reform has not yet been formed in the conditions of many alternative opinions: direction, proportions of tariffs redistribution, organisational structure, system control and management politicians, specialists and representatives of government make accent on certain details of reforms, which hampers the formation of pension strategies. It is noteworthy that trend of positional approach is observed in this direction. The situation in pension system indicates at the need to implement reforms implying fundamental change of the existing approach in the system and its organisational improvement with the purpose of achieving quick and important results in the shortest time.
Personified registration is one of the most important elements of reform in pension system. Introduction of new system of pension registration made it possible to solve such important issues as determining accuracy of insurance fees computation. The practice revealed that in countries with personified registration system errors in computations made up approximately 14%. It is quite a great reserve that will turn into an important source of increasing social budget from the fiscal point of view. Database of personified registration system will promote the differentiation of pensions in the country, i.e. award of pensions in accordance with insurance fees and length of work. The personified registration system will make it possible to use the formula of pension awards in Georgia, which will help us to avoid the possible mistakes and inaccuracy.
Personification also has moral and ethic aspects implying protection of citizens’ pension rights – individual personification number will become a warrant of pension award. Pension motivation of population is important during the reform in pension system, as it will be possible to distribute the exact quantity of fees, increase the number of participating subjects in insurance system (we mean farmers, individual proprietors and other self-employed population) and, what is most important, create economic basis for salary system legalisation. We should not forget that inefficient schemes (there are many examples of it in Georgia) and strategy can lead to discredit of reforms prior to their implementation.