Transition Process in Post-Soviet Georgia: Promises, Expectations and Realities

Luka Ekhvaia
Graduate of the MIREES at the University of Bologna

After the disintegration of the Soviet Union, the turbulent and puzzled transition process has begun. This was the historical moment when it was deeply believed that Francis Fukuyama’s prediction was materialized and liberalism won the battle firstly against absolutism, later against Bolshevism and fascism, and then against the Marxism.[1] Fukuyama anticipated that Western liberal democracy has reached the unequivocal and decisive victory and this trending set of ideas were monopolizing the entire planet including newly born independent states of the former Soviet Union block. This was the momentous episode of history when there was not any more alternative for the Western liberalism and the era of ideological confrontations seemed elapsed. It was naively believed that Western liberal democracy was the pinnacle of humankind’s ideological evolution and universalization of this ideology was the only decision for developing the best possible model of government.[2] The post-Socialist countries didn’t have any alternative besides adopting the prescription thoroughly for their transition process made in the Western world.

What was the prescription which carried an absolutely imperative meaning? It was a full package of reforms with political, economic and social dimensions. Each dimension had its own instructions which were expected to be strictly followed. The political aspect of the reforms included construction of the liberal-democratic regimes which would guarantee the rule of law and protection of human rights. The economic expression of the reforms was to enact free market principles consisting of a free trade and free movement of the product with a hope of immense economic progress. On the social level, the reforms were supposed to bring prosperity, wellbeing, security and westernized civil society what was assumed to be one of the strongest pillars of liberal democracy.

The promises were made and expectations of the Eastern European countries were too high. But the stakes were too high as well. Georgian society as entire Eastern European population fully trusted in the promises and was waiting for rapid democratization and economic flourishment. However, what occurred in Georgia as perhaps in other Eastern European countries was not the scenario which was planned by the International Monetary Fund (IMF) as a leading institution for channeling international assistance to post-Soviet countries. Their method of so-called “learning by doing” and “Shock Therapy” showed itself to be not so much success as it was supposed to be. The consequences of “Shock Therapy” was meticulously demonstrated in the case of Russia.

As people were told before capitalism was surmised to bring unprecedented prosperity and progress, though it brought unprecedented poverty and rising inequality. If we look at the various statistics we will see that poverty in Russia has increased from 2% to 40-50%, depends on the statistics we allude to.[3] Basically, what they did in Russia was rapid privatization, deregulation of the market, elimination of price controls for the commodities, liberalization of the prices and implementation of free-market principles and the result for it was hyperinflation. The privatization process has converted the political power of the Soviet nomenklatura into economic power,[4] within this completely corrupted process the country’s capital turned out to be concentrated in the few oligarchs’ pockets. Pushing privatization, making it the excessive and uncontrollable process was one of the crucial mistakes which were done under the Shock Therapy.

There is the myth that Poland was successful with Shock Therapy, but what happened, in reality, is quite different. As Stiglitz is claiming what Poland did was regulation of the abnormally high level of inflation and keeping it under the reasonable levels, such as 15-20% in a year. Later they took gradualist policies for reconstruction of their society.[5] Compare to this precedent what happened in Georgia can be encapsulated as late Shock Therapy, inasmuch as it was promptly started after the gaining independence with an immense economic decline, but it was moved in totally distinct level with a Rose Revolution. From 2003 accelerated neoliberal modernization project was believed to fundamentally restructure country’s politics, economy, and culture.

Economic Dimension of the Neoliberal Experiment
As Eveline Baumann argues the imbalance between positive macroeconomic outcome and people’s perception of living conditions prompts us to question the outcomes of post-Soviet countries transition. The threefold challenge such as state building, democratization and the introduction to a market economy are three closely linked elements of the transformation process, but they have their own unique logic and temporality, as Eveline adds. This distinctness can produce a series of contradictions.[6] On one hand, economic growth was almost 10% and Georgia was praised as a successful reformer by the World Bank, IMF, and the USA. (Eveline Baumann, 2010) In 2012 Georgia was ranked 9th in the World Bank’s ease-of-doing-business ranking, in 2005 it was only 112th. Index of economic freedom was improved as well, Georgia was moved from 82nd place to 34th.[7] On the other hand, if we observe other economic indicators excluding the increased GDP, an improved environment for doing business and index of economic freedom, we will see the quite painful reality which was concealed smoothly.

It was not really a shocking occurrence that industrial production had decreased dramatically during the neoliberal modernization project, as Lado Gurgenidze, Prime Minister was committing, “we’re libertarians”, “we do not have any industrial policy of any kind in any sector…”, and “we take any legal activity… it does not matter where the growth comes from”.[8] Indeed, industrial production was collapsed, from 1991 until 2009 it was declined almost with 30% compared to the Soviet times. The same scenario took place in the agricultural sector, the share of agriculture to GDP was fallen approx. with 25% from 1991 until 2009. However, at the same time, fields like a construction, transportation, and communication were expanding and these sectors were grown with 50-62%. (Eveline Baumann, 2010) According to these statistical data, we can evaluate the priorities of the political regime and ideological basis of it. As it was declared by the leading politicians and locomotives of transformation they were building a libertarian state and making everything private. Their primal goal was to establish a small state with abolishing all the state regulations. Though, what was established was completely different from libertarian utopia.

What happened in the labour market was shocking as well. If during the Soviet Union the salaried lifetime jobs were guaranteed and self-employment was not relevant at all, during the transition six to seven workers out of ten were self-employed. Compare to other post-soviet countries the level of self-employment of the Georgian labour force is the highest 63%, against 57% in Kazakhstan, 31% in Moldova and 6% in Russia. (ILO labour statistics)

The crucial point here is that definition of self-employment and unemployment are extremely arguable: “…the status of self-employment is pre-defined, since one hectare of agricultural land in the possession of a family means its members are self-employed by definition. Whether one hectare of land is enough to earn a minimum subsistence is debatable insofar as the productivity of these small-scale farms is so low that in numerous cases production is insufficient to be sold on the market.”[9] This necessarily means that the real level of unemployment in Georgia is scrupulously concealed. The official number such as 16.5% of unemployment in 2008 don’t express the real social catastrophe which became a daily routine in Georgia. In this very spot, we have to mention that in 2008 the level of unemployment was raised with 5% compared to 2003 and this is another ‘spectacular’ outcome of the Rose Revolution. (Ministry of Economic Development of Georgia 2009a: 9)

Political Implications of the Neoliberal Project
As the rule of Saakashvili’s government was started, the level of criminal offense in Georgia was exceptionally high, corruption was another severe problem. Despite the fact that Saakashvili and his ministers such as Minister of Economy, Kakha Bendukidze were self-affirmed libertarians and they believed in the idea of night-watchman state which basically indicates that state interventions into the politics and economy have to be nominal, the unofficial goal of the Saakashvili’s government had become to build a strong state. The concept of building a new and strong state rested on two pillars, fighting the all-embracing corruption and organized crime.[10] However, as the influence and strength of police institutions were growing, the degree of police misconduct and the use of excessive force in the streets and in the prison was escalating and a step-by-step police state was imposed. Criminal authorities and their influence on social life were slowly replaced by the repressive police institutions and their immeasurable power. As a rule, anti-crime operations were mostly based on quasi-legal practices with a disrespect for the rule of law. (Alexander Kupatadze, 2012)

Concurrently, to the police enforcement, the war against corruption was commencing. The victory was gained, so-called “popular corruption” was defeated but the price which was paid for the victory was a foundation of the elite corruption. What elite corruption signifies is an embezzlement of public assets by public officials and earning economic and cultural dominance and exclusiveness by illegally practiced coercive political power. The elite corruption had heterogeneous consequences in Georgia, including oppression of the private sector and cultivation of the oligopolies in every strategic field of economy, state favoritism in the media sector and giving a birth to the vicious circle of the court system which was controlled by the ruling power.

The elite corruption and free market are contradictory notions since they can’t coexist together. In the countries where corruption is roaring in high echelons, the size of the shadow economy is larger as well and business is always under the risk, inasmuch as government and its actions are often unpredictable.[11] Consequently, what Georgia got after the ‘rapid modernization’ is not competitive and free market economy, but authoritarian neoliberalism.

When it was mentioned above about the neoliberalism one must keep in mind the definition which was composed by Jeremy Gilbert, “Put, simply, neoliberalism, from the moment of its inception, advocates a programme of deliberate intervention by government in order to encourage particular types of entrepreneurial, competitive and commercial behaviour in its citizens, ultimately arguing for the management of populations with the aim of cultivating the type of individualistic, competitive, acquisitive and entrepreneurial behaviour which the liberal tradition has historically assumed to be the natural condition of civilized humanity, undistorted by government intervention.”[12] This definition is valuable contribution in the way of understanding the essence of neoliberalism. It gives us a vivid perception about the difference between liberalism and neoliberalism as well. If in the theories of liberalism any government intervention was considered generally unnecessary action, since it was believed that market can be self-regulative, in the terms of neoliberalism state regulations is largely allowed and favored.

As a matter of fact, based on empirical observation we can assume that majority of political forces characterized by aggressive laissez-faire rhetoric and libertarian inspirations were tended to systematically intervene in politics and economy.  In the case of Saakashvili’s government, this sort of consistent interventionism had formed authoritarian neoliberalism backed by the police state and elite corruption, instead of libertarian paradise.

In Place of Conclusion: Neoliberal Modernization as a Failure
Above we’ve discussed some major political and economic ‘achievements’ of Saakashvili’s regime. This analysis was aimed to desacralize the recent transformations in Georgian politics and divulge vastly unknown and unspoken outcomes of the late transition. Nonetheless, the impact of neoliberal policies on the society was much more brutal and merciless and it could be easily detectable if we gradually examine the cultural transformation of the society. Free market dogmatism which additional aroma of nationalist-populist sentiments excruciatingly effected people’s consciousness and the powerful discourse of neoliberalism still remains irreversible.

Georgian society still faces a lot of obstacles and challenges, one of them is to form the functional civil society which will go beyond NGO system and will find a space for grassroots movement. Student movements are voided from life forces as well and they are unable to produce an impulse or ideas for making a crack on the status quo. There is no any ideological alternative for fundamental transformations of the state of things. Leftism still proves to be in the embryonic phase of evolution and it is totally incapable to kindle the war against neoliberal order.

At this point, it is completely compulsory to re-read and reevaluate the history of transition in Georgia in order to better grasp the crux of the mistakes which were made within this process. Only after the radical rethinking of the recent history, it would be possible to suggest a profoundly different vision for future developments.

The article was written in the frames of the project “Black Sea – Eastern Europe Dialogue – Youth for Sustainable Peace” funded by The Robert Bosch Stiftung (RBSG) and the Black Sea Trust for Regional Cooperation of The German Marshall Fund of the United States (BST). The content of this article is the sole responsibility of the author and can under no circumstances be regarded as reflecting the position of Caucasian House, Center for European Neighborhood Studies, RBSG and BST.

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[1] The End of History?, Francis Fukuyama, the National Interest, 1989.

[2] Ibid.

[3] Commanding Heights: Joseph Stiglitz. An Interview from PBS Online.

[4] The Reformation of Post-Socialist Russia, Tornike Chivadze, 2016.

[5] Commanding Heights: Joseph Stiglitz. An Interview from PBS Online.

[6] Post-Soviet Georgia: the Rocky Path towards Modern Social Protection, Eveline Baumann, 2010.

[7] Lessons from Georgia’s neoliberal experiment: A rising tide does not necessarily lift all boats, Dimitri Gugushvili, 2010.

[8] A Conversation with Lado Gurgenidze, Former Prime Minister of Georgia, Milken Institute Global Conference, 2009.

[9] Post-Soviet Georgia: the Rocky Path towards Modern Social Protection, Eveline Baumann, 2010.

[10] Police Reform in Georgia, Alexander Kupatadze, Center for Social Sciences, 2012.

[11] Detection of Cases of Elite Corruption and Governmental Pressure on Business, Economic Policy Research Center (EPRC), 2012.

[12] What Kind of Thing Is ‘Neoliberalism’?, Jeremy Gilbert, published in New Formations,  Issue: 80/81: Neoliberal Culture, 2013.

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