Back And the Winner is … Georgia? - Next 
Presentation of the Invest in Georgia campaign in London during the Forum Road Show in London, 31 October 2007.
Photo: Invest in Georgia

In October 2006, libertarians from 28 countries around the world gathered in Tbilisi to discuss liberal reforms they had implemented in their respective countries and to share lessons learned. The event was organized and financed by libertarian think tanks including the Cato Institute, New Economic School of Georgia (NESG), the Atlas Economic Research Foundation, the Heritage Foundation and others. Andrei Illarionov, former Kremlin adviser and current Cato senior fellow was there. So was Mart Laar, former Estonian prime minister.[318] Dan Mitchell, Director of the Heritage Foundation, explained:

"governments are inefficient in redistributing the money they collect; government spending displaces money from the private sector; government programs discourage economically desirable decisions, such as saving, since people do not save any more after the government has subsidized pensions and health care; welfare programs encourage people to choose leisure over work; unemployment insurance programs provide an incentive to stay unemployed; government programs interfere with competitive markets; government programs inhibit innovation…."[319]

Therefore, he concluded, governments should be limited to offering only the basic services of "national defense, legal system, and public safety… so people can enjoy freedom."[320] This was John Galt's vision, now coming to life not in Colorado but in mountainous Georgia.

In 2007, the Georgian government hired the international advertising agency M&C Saatchi. Its international rankings in EDBI were now put at the heart of an international marketing campaign in 2007. On CNN, in the Economist, in the Financial Times a global audience came across the slogan: "And the Winner is: GEORGIA."[321] The message was straightforward, comparing Georgia to other major countries in the world economy:

"Georgia vs. Germany: Germany, a byword for economic prosperity, does all it can to encourage entrepreneurs… No, the real surprise is that in the latest tables the nation of Georgia ranks even higher. Oh, and the summers are warmer in Georgia too.

Georgia vs. China: In the league table of the world's most reformed economies, China comes an excellent fourth. But who comes first? That would be Georgia. We may never be as big as China, but we've always punched above our weight."

Georgia vs. Holland: Situated on the Black Sea, we're at the crossroads of Europe and Central Asia. Transit links, whether by sea, road or air, are superb. And for the past five years our growth rate has exceeded that of most countries in the world. Including Holland."[322]

"And the Winner is Georgia" ad campaign. © 2007 Saatchi. All rights reserved.

Georgian officials travelled to investor forums hosted by The Economist, The Financial Times and Dow Jones. And at the end of 2007 Bendukize was joined in the Georgian government by another confirmed libertarian: Lado Gurgenidze. Born in 1970, a dual Georgian-UK citizen with an MBA from a US business school, he now became Georgian prime ministers. Having left Georgia in 1990 to pursue studies abroad, Gurgenidze had made a career in finance in Europe. He returned to Georgia in 2004, taking the position of the CEO of the privately owned Bank of Georgia.[323] He managed to turn the bank around and make it one of Georgia's leading financial institutions. Like Bendukidze, he saw himself as a "technocrat, not a politician."[324] An open admirer of Ayn Rand, Gurgenidze named his company Galt & Taggart Securities after the names of the main characters in Rand's novel Atlas Shrugged.

Like Bendukidze, Gurgenidze was convinced that Georgia, being a small and poor country in a difficult geopolitical environment, needed to become "better than others" in order to succeed and that half measures did not work. The "recipe for Georgia's success" that Gurgenidze outlined in an interview at CATO Institute in October 2008 was libertarianism:

"Low and flat taxes; Commitment on a legislative level to reduce the government's fiscal footprint; Deregulation and cutting the red tape; Unilateral free trade; Very flexible labour legislation; No sector or industrial policy of any kind; No market-distorting practices such as subsidies, preferences, or exemptions; No currency or capital controls; A 'hawkish' anti-inflationary stance, and 'aggressive' privatization."[325]

Lado Gurgenidze. Photo: Georgian Government

In an April 2009 presentation at the Milken Institute in California Gurgenidze spoke of "unilateral liberalization, deregulation and privatization" as the key reform principles. In addition, he emphasized the need to make reforms "succession-proof."[326] On 8 April 2008, on Gurgenidze's initiative, the Georgian government floated a US$500 million Eurobond issue, which was an "instant success," with demand for the bonds greatly exceeding the supply.[327]

In May 2008 Kakha Bendukidze, now the head of the Georgian presidential administration, was invited to present Georgia's economic success story at the CATO Institute's Policy forum in Washington DC under the title Georgia's Transformation into a Modern Market Democracy.[328] Introduced by Russian economist Andrei Illarionov, now working for CATO, as "the driving force behind Georgia's reforms", Bendukidze presented the libertarian success story of his country as a victory of self-evident truths. Throughout his speech Bendukidze also makes fun of the love for regulation he sees at work in the rest of Europe:

"Our ideology behind the reforms was making everything private as much as possible…

and we decided to liberalize our market and open our society unilaterally, which means that we are not waiting for other countries when they decided to reduce for example customs duties. If they want to torture their citizens it is their business."

"Licensing, actually there is an idea somewhere born, I don't know, in Germany or where normal person cannot conduct activity without having special licence and there was huge amount of licenses. That is unfortunately usual for many countries. We have reduced the number of licences 85 percent so now we have 6 times less licences and permits than we had before, and we simplified the licensing. I think that this year we can make another big leap and reduce maybe twice or three times."

"So why is privatization important for developing countries? First there is no culture of managing state owned enterprises, anywhere but especially in developing countries. Second, there are many different types of corruption so it was my personal goal to privatize as much as possible because I think that in a country like Georgia corruption is one of the biggest potential problems. So we privatized all international airports, perhaps the railway in a few years, all sea ports, generation and distribution of energy, gas supplies, agricultural land this will happen quite soon and as I mentioned we have this quasi privatization of natural resources through tradable licences."[329]

It was a confident performance: Georgia faced a bright future, and so did the libertarian principles, which had made its economic miracle possible. Bendukidze's prophecy of a 12 percent growth rate came true: in 2007, the real GDP growth rate reached 12.4 percent.[330] Thus Georgia proved that, by following the prescriptions of the Ease of Doing Business indicators, a country could change its image, attract investment and grow fast. Or so, at least, it appeared to those who had designed the EDBI and helped Georgia rise in its ranks. As the mastermind behind Georgia's aggressive reform drive, Bendukidze enjoyed the full support of both the EBDI team and USAID in Georgia. Any criticisms were drowned in the praises of Washington-based think tanks. The Heritage Foundation, whose Georgian partner was none other than the NESG, also saw Georgia rise rapidly in its index of economic freedom. And in 2009 a report by the US Agency for International Development noted that:

"Perhaps the most telling indicator of what has been accomplished is the new status that Georgia has gained as an investment destination, after the broadest, deepest, fastest business climate reforms of any country in the last 50 years."[331]

[318] For more information on the event and the speakers please visit the website of the Cato Institute.

[319] Dan Mitchell (Heritage Foundation), "Why Government Spending Hinders Economic Growth", Conference papers and presentations, 25-27 October 2006, Tbilisi, p. 10-14

[320] Dan Mitchell (Heritage Foundation), "Why Government Spending Hinders Economic Growth", Conference papers and presentations, 25-27 October 2006, Tbilisi, p. 15.

[321] View a campaign video "Georgia vs. Germany" at: Invest in Georgia.

[323] Lado Gurgenidze: "London Can Do Without Me, Much Work in Georgian Banking." Interview with General Director of Bank of Georgia. 24 Hours, no. 202 (31), 24 February 2005.

[325] Emmanuel Martin, "Interview with Lado Gurgenidze," YouTube, October 2008.

[328] CATO Institute, "Georgia's Transformation into a Modern Market Democracy," Policy Forum, 13 May 2008.

[329] Watch the full video of Bendukidze's presentation at: CATO Institute, "Georgia's Transformation into a Modern Market Democracy," Policy Forum, 13 May 2008.

[330] National Bank of Georgia, Annual Report 2007, p. 11.

Suggested readings

Click here for "And the winner is Georgia" campaign.

The Cato Institute together with the New Economic School of Georgia organized a libertarian event in Tbilisi in 2006. Co-organizers included the Atlas Economic Research Foundation, the Heritage Foundation, the Friedrich Naumann Foundation and others. For more see Freedom, Commerce, and Peace: A Regional Agenda.

To get a sense of Georgia's economic improvements, please see a set of IMF reports on developments since 2004, at the IMF's Georgia website.

IMF: "Georgia: Fifth Review Under the Stand-By Arrangement and Request for Modification of Performance Criteria" (2010). Pages 27 onwards include macroeconomic indicators.

IMF: "Georgia: First Review Under the Stand-By Arrangement-Staff Report; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Georgia" (2009):

"Real GDP growth, which had been impressive and broad based until June 2008, is projected to become negative in the second half of 2008, following a sharp decline in private demand driven by lower inflows and the shock to confidence. Growth in 2008 is projected at 3 percent." (p. 8)

IMF: "Georgia: Sixth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver of Performance Criteria - Staff Report; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Georgia" (2007):

"Fiscal performance saw a spectacular improvement, with tax revenues increasing from 14.5 percent of GDP in 2003 to almost 22 percent in 2006, despite a reduction in rates and the elimination of a number of taxes. Combined with privatization proceeds (which averaged 4.2 percent of GDP in 200506), this allowed the authorities to clear arrears, increase pensions, and upgrade defense capacity and economic infrastructure, while reducing public debt from close to 50 percent of GDP in 2003 to 22 percent in 2006." (p. 4)

IMF: "Georgia: Poverty Reduction Strategy Paper Progress Report" (2005)

IMF: "Georgia: Ex Post Assessment of Georgia's Performance Under Fund-Supported Programs--Staff Report; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Georgia" (2004):

"Although Georgia undertook significant privatization during the 1990s (virtually all small firms and over 1,000 medium and large ones were privatized) the program overlooked privatization of many large enterprises with the exception of the Tbilisi electricity distribution company…some progress was registered in 2003 with the privatization of Azoti and Zestafoni Ferro plants and the introduction of private management in key electricity sector entities, as mentioned above." (p. 8)

This paper was published by the IMF in November 2003, just days before the Saakashvili's team ousted Shevardnadze from power: "Georgia: 2003 Article IV Consultation--Staff Report; Staff Statement; and Public Information Notice on the Executive Board Discussion" (2003)

"The authorities need to redouble their efforts to tackle pervasive corruption and tax evasion. This will be key for generating the resources necessary to discharge core government obligations and fostering a business climate conductive to higher private investment" (p. 5)

For selected IMF papers from the pre-Rose Revolution period, please see:

On industry in Georgia see World Bank: "Georgia: A blueprint for reforms" (1993):

"Prior to World War II, the industrial sector in Georgia was small, and concentrated in food processing, mining, light industries (particularly textiles), and woodworking. The major thrust of subsequent industrialization under the auspices of the Soviet central government focused primarily on rapid development of military production, and thereafter on electro-machinery building, and heavy industry."

April 2010

 Back And the Winner is … Georgia? - Next