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View of Tbilisi. Photo: ESI

Commenting on Saakashvili's re-election in January 2008, the World Bank's Simeon Djankov wrote an article entitled "Top Reformer Wins Election in Georgia." In the article, Djankov praised Georgia's reforms: "Since 2004, when Saakashvili won his first mandate, Georgia has been the fastest reforming economy according to Doing Business. For three years running, it appeared in the top-10 reformers' list; and was the top reformer in Doing Business 2007." The author also made clear who stood behind this breakthrough:

"Much of the credit for these reforms goes to Kakha Bendukidze, the state minister of reform. Dr Bendukidze has been reforming everything, from business entry to a new 2007 bankruptcy code."[25]

Following the government crackdown on protests in Tbilisi in November 2007, with their democratic credentials weakened, Georgia's leaders began to put increasing emphasis on their successful economic reforms. In October 2008, Georgia's then Prime Minister Lado Gurgenidze (born in 1970) wrote an op-ed in a British paper on how "Georgia can be a guiding light to other states":

"it is entirely conceivable that in 10 or 20 years time a new generation of policy makers in emerging markets around the world may draw inspiration from our efforts to build, against high odds, a functioning democracy with the highest-possible level of economic liberties."[26]

Vladimer Gurgenidze
Vladimer (Lado) Gurgenidze. Photo: Tbilisi City Council

Gurgenidze, a British citizen who had worked as an investment banker in the City of London, spoke about Georgia's governing philosophy of "compassionate libertarianism." Georgia, he pointed out, had one of the least restrictive labour codes, one of the lowest flat income tax rates (at 12 percent) and some of the lowest customs rates in the world. It had reduced the number of licenses and permits required by businesses from 909 to 159 in summer 2005, and further since. State revenues had increased from 558 million USD in 2003 to 3.3 billion USD in 2008.[27] Electricity shortages, long crippling for business and exasperating for citizens, had become a thing of the past. In 2007 FDI reached 19 percent of Georgia's GDP. Economic growth then stood at more than 12 percent.

Table: Economic Freedom – Georgia's ranking versus some EU member states[28]

 

Georgia

Belgium

Slovenia

 

 

 

 

Cato/Fraser Institute:              
(Economic Freedom of the World 2009)

42

47

64

Heritage Foundation:
(Index of Economic Freedom 2010)

26

30

61

World Bank and IFC:
(Ease of Doing Business 2010)

11

22

54

Forbes:
(Tax Misery and Reform Index 2009)

4

63

49

Georgia's leaders were not alone in hailing Georgia's economic breakthrough. Leading US think tanks celebrated Georgia as a global flagship of libertarian governance. In the most recent World Bank Ease of Doing Business Survey, Georgia comes 11th in the world. Heritage Foundation ranks Georgia 26th in its 2010 Index of Economic Freedom.[29] The Forbes 2009 Tax Misery and Reform Index regards Georgia as the 4th most tax friendly country in the world, behind only Qatar, the United Arab Emirates and Hong Kong.[30] This makes Georgia the most liberal tax regime in Europe. The most recent Economic Freedom of the World Index published by the Cato Institute and Fraser Institute, puts Georgia 42nd in 2007, ahead of many EU countries such as Slovenia or Belgium.[31]

Construction sire at the Iveria hotel
Construction site at the Iveria hotel (later renamed Radisson Iveria) in Tbilisi. Photo: ESI

In the eyes of Forbes, the Cato Institute, the Heritage Foundation and the World Bank's International Finance Corporation (IFC), Georgia is one of the most impressive global success stories of the past five years. Richard Rahn, a senior fellow at the Cato Institute in Washington DC and chairman of the Institute for Global Economic Growth, noted in 2008:

"Georgia is a poor country, but for the last four years it has experienced some of the highest economic growth rates on the planet - from more than 9 percent to 12 percent per year … Georgians elected perhaps the freest market government in the world four years ago. The president, prime minister and state chancellor are all dedicated free marketeers who studied F.A. Hayek and Milton Friedman and have learned from the successes of Margaret Thatcher and Ronald Reagan." [32]

 


[25] Simeon Djankov, "Top Reformer Wins Election in Georgia", Doing Business Blog, 7 January 2008.

[26] Lado Gurgenidze, "Georgia Can Be a Guiding Light to Other States", Telegraph, 5 October 2008..

[27] National Bank of Georgia, Annual Report 2008, p. 13. USD-GEL exchange rate taken from http://www.geres.ge/currency/rates.html?lang=en&d=31&m=12&y=2008&go.x=16&go.y=10.

[28] The latest rankings are all proudly displayed on the Invest in Georgia website of the Georgian government. The scores cited here come from: Fraser 2007 (the latest), Heritage 2010, World Bank 2010, Forbes 2008.

[29] Heritage Foundation, 2010 Index of Economic Freedom.

[30] Forbes, 2009 Tax Misery Index.

[31] Economic Freedom Network, Economic Freedom of the World: 2009 Annual Report, p. 10.

[32] Richard W. Rahn, "Georgia's Wise Decisions", Washington Times, 15 October 2008.

Suggested readings

In his detailed history The Making of the Georgian Nation (second edition) Ronald Grigor Suny notes that after achieving independence in 1991 "Georgians became the victims of their own excessive rhetoric and ill-considered political choices" (p. 334).  He quotes Elizabeth Fuller who described the philosophy of Gamsakhurdia (the first elected leader of Georgia, toppled by a coup in January 1992) as follows:

"Central to Gamsakhurdia's entire political career is his messianism – his mystic belief that he was divinely appointed by God to lead the Georgian people, and by extension, that Georgia has a divine mission to be a moral example to the rest of the world."

The notion that Georgia should be an example to the rest of the world, albeit shorn of its mystical and religious overtones, is also very present in the rhetoric of Georgia's libertarian leaders and their friends in international organisations. It is present in many speeches made by Mikheil Saakashvili.

One of the most outspoken advocates of this vision of Georgia as a global model is Lado Gurgenidze, Georgia's libertarian prime minister from late 2007 to late 2008.

In "Georgia Can Be a Guiding Light to Other States", an op-ed published in The Telegraph in October 2008 Gurgenidze uses his own life-story to make the case that in Georgia everything is possible:

"In autumn 2004 I departed London, uprooting my young family and leaving a comfortable City job, to rebuild a chronically under-managed, former state-owned bank in Georgia with a market value of £14 million and a sizeable hole in its balance sheet … Within three years, and with a talented team of veterans from Western banks, Bank of Georgia was a London Stock Exchange-listed financial institution with a market value of £460 million."

And he continues:

"Preserving Georgia's democracy and territorial integrity is increasingly seen as 'not about just Georgia any more', but about the inviolability of sovereign borders and the supremacy of the rule of international law over the rule of force. I would argue that there is another, often-overlooked dimension. The World Bank ranks Georgia as the 15th freest economy in the world, with the level of economic liberty exceeding our Central and Eastern European peers and most EU countries (the United Kingdom is ranked 6th). The world has a vested interest in promoting Georgia's success on its chosen path."

For a very detailed discussion of Georgia's reforms, listen to Lado Gurgenidze's April 2009 presentation (75 min) at the Milken Institute in Los Angeles, California. Gurgenidze focuses on the successes of Georgia's radically liberal policies and points out, "It's not enough to be like other countries. We have to be better. Unabashedly, unequivocally better."

Gurgenidze sees Georgia's future as part of a wider story of "extending the march of freedom to the eastern shores of the Black Sea." Similarly, Richard Kahn, a senior fellow at the Cato Institute in Washington DC, credits both Bendukidze and Gurgendize with Georgia's transformation into a model of economic governance:

"Much of the inspiration and drive for the radical free market reform of the Georgian economy comes from a mountain of a man named Kakha Bendukidze, whom I first had the pleasure of meeting some years ago in Russia … Commenting on the international financial crisis, he correctly observed that as long as governments continue to rely on central banks and extensive regulation of the financial industry rather than free banking, "periodic financial crises will continue to plague mankind."

"The prime minister, Lado Gurgenidze, was both educated and spent considerable time in the United Kingdom and clearly was influenced by Mrs. Thatcher. I asked him if he was concerned that the pressures to grow the size of government because of the invasion would undermine Georgia's reforms (note: history shows governments almost always grow in relative size versus the private economy in the time of crisis, such as wars or financial instability, even if governments create the crisis). The prime minister replied that the Georgians have not retreated from their reforms, including shrinking the size of government, and they fully understand any retrenchment would be very damaging."

Kahn concludes:

"There is a message here for the political leaders of America and Europe, but I expect most of them still will not get it."

Many of these articles, praising what Gurgenidze called "compassionate libertarianism" (see his March 2008 power-point presentation on the topic) appeared at a time which also saw the publication of many critical articles on Georgia's democratic maturity.

In September 2008 Lincoln Mitchell wrote in The New York Times that since the Rose Revolution

"media freedom was reduced, an independent judiciary did not evolve, the government party sought to weaken opposition parties, and a one-party system (its fourth in less than 20 years) was solidified." ("Viewing Georgia, Without the Rose-Colored Glasses," NYT, 25 Sep)

Newsweek wrote in September 2008 that "if anything, the country is becoming less democratic." (Michael Freedman, "The West Hails Georgia As a Democracy. But Is It One?" Newsweek International, Sept. 2008.)

April 2010

 Back "A guiding light to other states" - Next 
Reinventing Georgia: The story of a Libertarian Revolution
Georgia as a model
Georgia as a model
  Bendukidze and Russian capitalism
Bendukidze and Russian capitalism
     
Jacobins in Tbilisi
Jacobins in Tbilisi
  The future of Georgian libertarianism
The future of Georgian libertarianism

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15 April 2010, 00:00