The remainder of this chapter will look at a number of factors, including some strategies and bottlenecks, that affect the capacity of Georgians to ensure a "standard of living adequate for the health and well being of himself and his family". Because, in the short term, income is the variable that will most affect changes in the HDI, we decided to first describe (a) the sources and levels of income for different strata of the population. This is followed by (b) access to living conditions; (c) access to employment; (d) capacity to form labor unions; (e) access to land; (f) access to capital inherited from the Soviet System; and (g) access to social welfare and insurance. Because we believe that the high expectancy of life at birth and the high combined primary, secondary and tertiary education enrolment demand separate treatment, we discuss these topics in chapters 3 and 4 respectively.

UNIVERSAL DECLARATION OF HUMAN RIGHTS, Article 23.3

It is not easy to estimate the average income of a Georgian household. Several reasons account for this problem. Among them, is that approximately 25 percent of employees have an additional informal job, which makes their remuneration difficult to work out. In addition, about 78 percent of self-employed people work in agriculture and do not receive a regular monetary income. A considerable share of the Georgian economically active population is involved in the "informal economy" and does not easily declare its true income. Accordingly, official figures show a disparity between the Georgian population’s total monetary income and expenses for the period 1995-1999.

The figure above shows that in 1995 and 1996, reported expenses match reported income but that from 1997, reported expenses regularly exceed reported income. The difference between the figures tends to increase. In 1997, the difference was 24.71 percent, in 1998 it was 30.88 percent and in 1999 it was 35.62 percent. In addition, one can see that from 1996 on, reported income and reported expenses decreased. This looks incongruent if one considers that in 1997 the economy was expanding fast and continued to expand, albeit much slower, even after the Russian crisis.

Several factors may help to explain the trend in Figure 2.1. The first could be a growing public reticence to report real income, perhaps stemming from the fear of a follow-up visit from the taxman. The second factor could be that the average household came to rely more and more on the expansion of the informal economy as its main source of income. In general, income from the informal economy is substantially more underreported than that from formal sources. The informal economy’s importance as a source of income is anything but surprising if one takes into account formal salaries paid in different economic sectors. Table 2.2 describes employees’ average monthly salaries according to different economic categories. The highest salaries are paid in international organizations or international firms while the lowest are in the health care and education sectors. At the same time, the tendency of real salaries to increase can be noted, though most remain below the poverty line. The difference in male and female wages can reach as much as 50 percent.

Between 1997 and 1999, the State Department of Statistics (SDS) carried out a Household Survey, which included a comprehensive survey of different Georgian families’ income sources and expenditures. Table 2.3 presents the reported average monthly income while Table 2.4 does the same for expenses. Even though the SDS surveys take into account both monetary and non-monetary income, the figures obtained are still less than estimated expenses. In Table 2.4, the data on households’ expenses for the year 2000 comes from the household survey performed by GORBI. (SDS data for 2000 was not ready at the time of writing this report.)

Table 2.4: Structure of Average Monthly Expenses of Population per Household, GEL

If we exclude income derived from the illegal appropriation of goods (e.g. armed robbery), common sense would suggest that people couldn’t consume more than the equivalent of their combined income. So, which is the approximate income of the Georgian population?

Without claiming to have an absolute answer, we have attempted to re-estimate average monthly income for the year 2000 using the data from the household survey performed by GORBI. First, we have obtained an estimate for the contribution from different sources of income to different households groups.

Table 2.5: Structure of Income of the Georgian Households (in %; year 2000)

Source: GORBI

From the data used to construct Table 2.5 we can also estimate the total income per category and total average income. By doing so, it is possible to harmonize the Georgian population’s income and expenses. Table 2.6 presents a revised income figure for the average Georgian household for the first half of 2000. This revised income figure is greater than the one reported for expenditures and allows the data for income and expenses provided by GORBI to pass a first test of consistency.

An interesting aspect of the revised figure for average monthly income is that it is above the minimum consumption basket. In addition, if figures for monthly average incomes for the period 1995-2000 are compared to the minimum consumption basket, one can see a steady improvement in the average Georgian’s capacity to make ends meet.

Fig. 2.2. Income as a Percent of the Minimum Consumption Basket in 1995-2000

Source: Budgetary Office of Parliament; GORBI

To some extent, these numbers are paradoxical. Look at Figure 2.1 again, in particular data for the years 1998-2000. In an environment of economic and budgetary crisis, at a time when salaries and pensions were and are not being paid for months, when the Georgian Parliament adopts a "Law on Budget" sequestering more than 250 million GEL, and when thousands of lari are being misappropriated from social funds, the trend showing the increase in average income appears to continue at almost the same rate as in, for example, 1997, when the economy was growing at breakneck speed. These findings are in line with data derived from polling performed by GORBI. The data show that 54.6 percent of respondents answered that during the last 12 months their income had either increased or remained the same whereas 38.5 percent announced an increase in their expenses within that same period.

Of course, the situation is not the same for all strata of the population. We are presenting average figures and these may say little about the capacity of each particular household to attain the minimum consumption basket. Table 2.7 presents a breakdown with percentage of households for each category of income.

Table 2.7 shows that approximately 6.5 percent of the Georgian population has almost no income. These are individuals who beg in the streets of Tbilisi, Batumi, etc and are highly marginalized. Equally disturbing is the fact that about 40 percent of the population is technically below the poverty line. Thus the average incomes reported in Figure 2.2 should be regarded with extreme caution when drawing conclusions. An average figure masks the fact that a significant proportion of the population has incomes below subsistence levels.

Surprisingly enough, despite the economic crisis of the last two years, despite the glut of unpaid salaries and pensions, and despite the low salary levels, there is an apparent tendency for average income equality to improve. Figure 2.3 describes a Lorenz curve for the Georgian population. Some progress in real terms appears to take place from 1996. This means that in addition to average incomes rising, equality of income also tends to get better. But not for everybody. The lowest 6.5 percent is not gaining ground and, in fact, is apparently locked in a poverty trap.

Fig. 2.3. Lorenz Curve of Income Distribution

Source: NHDR 1996; GORBI: Budgetary Office of Parliament

All these tables and figures appear to convey a sense of inconsistency between reported income and expenses that decrease in an environment of economic boom, or between salaries below the poverty line and an apparent improvement in average living conditions. We believe the answer to these questions, however, lies in the informal economy’s increasing importance as an income source for the average household. If so, then this could explain decreasing levels of reported expenses and income (because informal income is usually underreported) as well as the average household’s apparent capacity to make ends meet, despite formal salary and pension arrears, or despite formal salaries falling below the poverty line. In addition, the informal economy appears to have grown significantly since 1997.

An expanding informal economy would also be in line with the long entrepreneurship tradition of Georgians in general, and their equally long tradition of distrusting the governing authorities in particular. Those with a profound skepticism about the benefits of government intervention may see these figures as proof that in Georgia the smaller the government the better since, in any case, it has little effect on the individual’s capacity to pursue his/her own income. Though we sympathize with the idea of an efficient Georgian government, which ensures existing laws are respected, as well as with that of a government, which only intervenes in areas of the economy where the private sector will not supply an efficient level of goods or services, we are worried that the apparent rise of the Georgian informal economy harbingers the government’s increased inability to provide public goods such as an efficient police force, an agile court system, a decent care health system and well-maintained schools. For all these things the government needs to collect taxes and exercise its authority. On this score, the growth of the informal economy will not do much to help. In fact, we note with concern that in many parts of Georgia the government’s presence is almost a formality. We refer to places that seldom receive electricity in summer and no supply whatsoever in winter, places in which misappropriation of resources means salaries and pensions have not been paid for months (even years in some cases), and places in which neither the Ombudsman nor the justice system has much influence over how local conflicts are resolved.

In summary, in addition to reporting that the average situation of the Georgian household appears to be improving, the figures presented in this section also seem to suggest that the Georgian population, despite its government’s poor managerial performance, manages to improve its living conditions. The informal, almost vibrant, economy is the lifeline providing relief to the average Georgian household. There is little to celebrate and cheer in this. The growth of the informal economy is a response to the costs of going formal. The Georgian citizen sees government structures, such as the police force or the courts, as hurdles threatening the viability of economic activities rather than as crucial structures to enforce contracts and minimize transaction costs. Similarly, the population sees requisites for undertaking formal economic activities, such as paying taxes, as vehicles for a chosen few to enrich themselves at the expense of the many, rather than as a source of income to enable the state to provide a range of crucial public goods. In the long run, a growing informal economy threatens the government’s capacity to implement public policy. Neither the informal economy, nor the numerous clans that govern the informal sector, is anxious to provide such services as a decent health care system and public education, to ensure the rule of law works throughout Georgia, or to guarantee the provision of basic human rights.

Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing ...

UNIVERSAL DECLARATION OF HUMAN RIGHTS, Article 25.

The Georgian population’s living conditions are, on average, better than those in other CIS countries. Figure 2.4 indicates that over 60 percent of households own their homes. Housing is almost universal in Georgia.

Fig. 2.4. Living Conditions of the Georgian Population

Source: SDS

It is true that living conditions inside a significant number of these apartments or houses fall a long way short of standards taken for granted in western countries. Only about 50 percent of households have a telephone line and less than 50 percent have centralized or individual heating systems and are thus depend on kerosene and electric heaters (Table 2.8). Nevertheless, despite these shortcomings, it should be recognized that Georgia has managed to avoid the expansion of those "shantytowns" that have sprung up in almost all other post-communist countries of the CIS.

Source: SDS

Table 2.9 shows the average living space per household. More than 41 percent of householders have houses or flats bigger than 100 m², more than 50 percent of flats are over 80 m², and more than 65 percent are over 60 m². According to data collected by GORBI, 57.18 percent of householders live in their own flat whereas 42.82 percent share the flat with parents or live in a communal flat. A significant number of households owns a flat (90.8 percent), while 1.0 percent rent from the state and 0.9 percent from a private person. In addition, a remarkable number of households (25.7 percent) own a house other than the one in which they live (for summer or winter holidays).