Chapter 2
Georgian Society and Access to Social Rights
Everyone has the right to a standard of living adequate for the health and well being of himself and his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond its control.
UNIVERSAL DECLARATION OF HUMAN RIGHTS, Article 25
Civil and political rights are integral aspects of a society that claims to respect human rights. These rights benefit not only those citizens who choose to exercise them but also society as a whole, for the seed of change and improvement comes from debate, discussion, and challenges to established ideas. Yet civil and political rights can be better exercised and enjoyed when other, more terrestrial, needs such as eating or housing have been met. It is difficult for a person to enter the political debate when his thoughts focus on day-to-day concerns about how to make ends meet for himself and his family. The time spent on political activism, for instance, has an opportunity cost in terms of the time not spent on other activities, such as procuring enough food to meet household needs. Likewise, people may find the freedom to move in and outside the country irrelevant, a freedom that requires the purchase of a bus or air ticket, if they find it problematic to pay a simple visit to the hospital.
This chapter provides a snapshot of Georgian society and its access to an array of socially perceived rights such as housing, employment, and pensions. This chapter finds that on average the situation of the Georgian household is improving, albeit slowly, and this is reflected in a better figure for the Georgian Human Development Index (HDI). However, not everybody is doing better and the daily life of many is still full of uncertainties, privations, and miseries.
Changes in the Human Development Index
Despite the difficult situation of a significant portion of the population, the HDI for Georgia has continued to increase. In 1998, Georgia ranked 108 out of a total of 174 countries. In 1999, Georgia advanced to 85th position, a climb of 23 positions. This year, 2000, Georgia has advanced to 70th position, a further increase of 15 positions.
Georgias relatively high position in the HDI index is the result of very good levels of combined primary, secondary, and tertiary enrolment ratios and a high life expectancy at birth, two of the three variables according to which the HDI is calculated (see Box 2.1). To a great extent, these are inheritances from the previous political system and reflect past Soviet standards of access to health and education services.
The high values obtained in the education and life expectancy components of the HDI are difficult to improve in the short term. Unless catastrophe strikes, life expectancy is not a variable that changes much from one year to the next; the same is true for education enrollment ratios. In the short term, improvements in Georgias HDI ranking will need to come from improvements in income per capita (see components of the HDI in Box 2.1). Georgias HDI rank has improved significantly in the last two years; does that mean income per capita has improved significantly as well?
Yes, but not as much as the HDI suggests. While the use of a refined methodology to discount income largely explains the 23 position difference in Georgias HDI ranking between 1998 and 1999 (see Box 2.2), the difference in 15 positions between 1999 and 2000 originates in an updated estimate of Georgias GDP per capita (GDP is estimated at Purchasing Power Parity in US dollars (PPP US$)). The GDP per capita data used to estimate the HDI 2000 rank is based on the latest International Comparison Program (ICP) surveys. The surveys cover 118 countries, the largest number ever in a round of ICP surveys, and are performed by the World Bank. The ICP survey found that Georgians income is greater than previously estimated.
In fact, Georgias advance in the HDI ranking between 1999 and 2000 originates exclusively in the updated GDP per capita figure of the World Banks ICP survey. If the HDI index is broken up by components, the combined primary, secondary and tertiary enrolment in Georgia and life expectancy have remained unchanged since 1999. Thus, the change in the estimation of Georgias GDP per capita accounts for the entire jump of 15 places. The fact that the change in Georgias HDI rank originates exclusively in revised figures of income per capita, and does not therefore originate from actual (real) changes on the ground, neither erodes the significance nor the meaning of the HDI. The new figures for GDP/capita produced by the ICP surveys will affect other measurements than the HDI, for instance those related to measuring poverty levels. The relative strength of Georgian statistics is a problem that also affects other indices. The IMF has been considering recalculating the figures for gross national product in view of perceived inconsistencies in the system of national accounts. We welcome these steps, because accurate statistics are necessary for determining and fine tuning public policies.
Table 2.1: Human Development Index Ranking: Top 120 Countries
1 |
Canada |
31 |
Korea, Republic of |
61 |
Malaysia |
91 |
Ecuador |
2 |
Norway |
32 |
Brunei Darussalam |
62 |
Russian Federation |
92 |
Jordan |
3 |
United States |
33 |
Bahamas |
63 |
Latvia |
93 |
Armenia |
4 |
Australia |
34 |
Czech Republic |
64 |
Romania |
94 |
Albania |
5 |
Iceland |
35 |
Argentina |
65 |
Venezuela |
95 |
Samoa |
6 |
Sweden |
36 |
Kuwait |
66 |
Fiji |
96 |
Guyana |
7 |
Belgium |
37 |
Antigua and Barbuda |
67 |
Suriname |
97 |
Iran |
8 |
Netherlands |
38 |
Chile |
68 |
Colombia |
98 |
Kyrgyzstan |
9 |
Japan |
39 |
Uruguay |
69 |
Macedonia |
99 |
China |
10 |
United Kingdom |
40 |
Slovakia |
70 |
Georgia |
100 |
Turkmenistan |
11 |
Finland |
41 |
Bahrain |
71 |
Mauritius |
101 |
Tunisia |
12 |
France |
42 |
Qatar |
72 |
Libya |
102 |
Moldova |
13 |
Switzerland |
43 |
Hungary |
73 |
Kazakhstan |
103 |
South Africa |
14 |
Germany |
44 |
Poland |
74 |
Brazil |
104 |
El Salvador |
15 |
Denmark |
45 |
United States Emirates |
75 |
Saudi Arabia |
105 |
Cape Verde |
16 |
Austria |
46 |
Estonia |
76 |
Thailand |
106 |
Uzbekistan |
17 |
Luxembourg |
47 |
Saint Kitts and Nevis |
77 |
Philippines |
107 |
Algeria |
18 |
Ireland |
48 |
Costa Rica |
78 |
Ukraine |
108 |
Vietnam |
19 |
Italy |
49 |
Croatia |
79 |
Saint Vincent |
109 |
Indonesia |
20 |
New Zealand |
50 |
Trinidad and Tobago |
80 |
Peru |
110 |
Tajikistan |
21 |
Spain |
51 |
Dominica |
81 |
Paraguay |
111 |
Syria |
22 |
Cyprus |
52 |
Lithuania |
82 |
Lebanon |
112 |
Swaziland |
23 |
Israel |
53 |
Seychelles |
83 |
Jamaica |
113 |
Honduras |
24 |
Singapore |
54 |
Grenada |
84 |
Sri Lanka |
114 |
Bolivia |
25 |
Greece |
55 |
Mexico |
85 |
Turkey |
115 |
Namibia |
26 |
Hong-Kong |
56 |
Cuba |
86 |
Oman |
116 |
Nicaragua |
27 |
Malta |
57 |
Belarus |
87 |
Dominican Republic |
117 |
Mongolia |
28 |
Portugal |
58 |
Belize |
88 |
Saint Lucia |
118 |
Vanuatu |
29 |
Slovenia |
59 |
Panama |
89 |
Maldives |
119 |
Egypt |
30 |
Barbados |
60 |
Bulgaria |
90 |
Azerbaijan |
120 |
Guatemala |
In total, 174 countries are ranked in terms of the HDI, with Canada at the top and Sierra Leone at the bottom. Those ranked up to 46th position are denominated to be of "high" development, while those ranked between 47th position and 139th are considered to be of "medium human development". The remainder is considered to belong to the "low human development" category.
Georgia, therefore, comes relatively high up the "middle human development" group. As mentioned before, Georgias performance in the HDI ranking rests primarily on its indicators for combined primary, secondary and tertiary education and life expectancy; their values are comparable to those countries located in the "high human development" group. Income is the sole component that drags down Georgias HDI.
Box 2.1: The Human Development Index
| The Human Development Index is based on three indicators:
longevity, as measured by life expectancy at birth; education, as measured as by a
combination of adult literacy (66 percent); and the combined gross primary, secondary, and
tertiary enrollment ratio (33 percent); and standard of living, as measured by Real GDP
per capita at Purchasing Parity Prices in U.S. dollars. There are fixed maximum and minimum values established for each of these indicators: Life expectancy at birth:
25 years and 85 years For any component of the HDI formula, the index can be computed according to the general formula: Index = For example, if the life expectancy at birth for Georgia is 65 years, the index of life expectancy would be: Index = Finally, the Human Development Index is an average of the life expectancy index, the adult literacy index, and the adjusted real GDP per capita (PPP$) index, and is derived by dividing the sum of these three indices by 3. |
Box 2.2: Treatment of Income
| Income enters into the HDI as
a surrogate for those dimensions of human development that are reflected neither in a long
and healthy life, nor in the level of knowledge a person attains. It is a proxy for a
decent standard of living. The basic approach to the HDIs treatment of income has
been driven by the fact that achieving a respectable level of human development does not
require unlimited income. To reflect this, income has always been discounted in
calculating the HDI. By "discounting" income, the HDI reflects the fact that the
additional income for a rich individual is of less value than for a poor one. In other
words, an additional $50 dollars for an individual earning an income of $50 is of much
more value than the same additional amount ($50) for an individual that is already earning
$500. How should it be discounted and at what level? Last year a thorough review of the treatment of income in the HDI was undertaken based on the work of Anand and Sen (see source below). We suggest reading their paper for a detailed discussion of the rationale and refinements involved in the new manner of constructing the income index. For reasons of space, we will only introduce the new formula here. For readers interested in accessing the old formula, we recommend obtaining a copy of the 1998 NHDR (available at the UN office in Georgia). To summarize, the 2000 HDI accounts for income according to the following formula: W(y) = There are several advantages to this formula. First, it does not discount income as severely as the previously used formula. Second, it discounts all income, not just the income above a certain level. Third, the asymptote starts quite late, so middle income countries are not penalized unduly. As income rises further in these countries, they will continue to receive recognition for their increasing income as a potential means for further human development. |
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.
Income and Expenditures
Everyone who works has the right to just and favorable remuneration ensuring for himself and his family an existence worthy of human dignity.
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 populations total monetary income and expenses for the period 1995-1999.
Fig. 2.1. Total Monetary Income Versus Expenses of the Georgian Population in 1997-1999

Source: Budgetary Office of Parliament
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 economys 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.
Table 2.2: Employees Average Monthly Salaries According
to Economic Categories
| Economic Categories |
1997 | 1998 | 1999 | ||||||
| Thousand employees |
% | Salary, GEL |
Thousand employees | % | Salary, GEL | Thousand employees | % | Salary, GEL | |
| Agriculture | 55.8 |
7.5 |
32.8 |
53.3 |
7.1 |
41.4 |
42.6 |
5.8 |
50.6 |
| Mining | 78.0 |
10.1 |
61.6 |
76.1 |
10.1 |
77.9 |
90.1 |
12.1 |
84.0 |
| Infrastructure | 24.2 |
3.1 |
58.3 |
28.2 |
3.8 |
81.1 |
25.7 |
3.5 |
95.5 |
| Construction | 21.3 |
2.8 |
100.0 |
29.1 |
3.9 |
130.0 |
23.9 |
3.2 |
135.1 |
| Trade & repair | 67.4 |
8.8 |
63.4 |
65.5 |
8.8 |
85.0 |
76.6 |
10.3 |
109.8 |
| Hotels & restaurants | - |
- |
- |
9.1 |
1.2 |
84.3 |
9.0 |
1.2 |
93.4 |
| Transport & communication | 68.6 |
8.9 |
71.1 |
71.9 |
9.6 |
91.2 |
59.0 |
8.0 |
92.8 |
| Financial mediators | - |
- |
- |
9.8 |
1.3 |
96.7 |
12.1 |
1.6 |
138.1 |
| Real estate | - |
- |
- |
5.8 |
0.8 |
59.7 |
16.7 |
2.3 |
87.2 |
| Public service & defense | 89.5 |
11.6 |
66.4 |
89.0 |
11.9 |
77.7 |
94.1 |
12.7 |
83.5 |
| Education | 163.4 |
21.2 |
25.2 |
145.7 |
19.5 |
35.5 |
138.3 |
18.7 |
43.1 |
| Health care | 96.8 |
12.6 |
27.1 |
81.2 |
10.9 |
39.2 |
89.7 |
12.1 |
44.1 |
| Culture, sport & other services | 62.0 |
8.1 |
53.0 |
67.0 |
9.0 |
64.4 |
54.4 |
7.3 |
70.4 |
| Other | 29.8 |
3.9 |
54.2 |
7.8 |
1.0 |
82.1 |
4.1 |
0.6 |
91.2 |
| International organizations | - |
- |
- |
1.6 |
0.2 |
286.2 |
1.7 |
0.2 |
897.2 |
| Not defined | 12.8 |
1.7 |
79.6 |
6.0 |
0.8 |
63.6 |
2.8 |
0.4 |
192.3 |
| Bulk | 769.8 |
100.0 |
49.0 |
747.3 |
100.0 |
66.6 |
740.8 |
100.0 |
79.2 |
|
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 2.3: Structure of Average Monthly Income of
Population per Household, GEL
Income |
1997 |
1998 |
1999 |
| Main Monetary income from: | 94.2 |
103.2 |
104.0 |
| - employed labor | 32.9 |
40.9 |
41.6 |
| - self employment | 26.5 |
21.8 |
14.6 |
| - selling of agricultural products | 18.1 |
20.5 |
26.6 |
| - hiring & managing real estates | 0.2 |
0.6 |
1.2 |
| - pensions, subsidies, etc. | 8.3 |
9.4 |
7.8 |
| - money received from abroad | 1.5 |
4.1 |
5.4 |
| - money encashed from friends | 6.7 |
6.0 |
6.7 |
| Other monetary resources from: | 13.3 |
23.9 |
22.2 |
| - property selling | 6.0 |
10.1 |
6.4 |
| - debts or usage of economies | 7.3 |
13.8 |
15.8 |
| Total monetary resources | 107.4 |
127.1 |
126.2 |
| Non monetary resources | 40.1 |
35.3 |
40.8 |
| Total resources | 147.5 |
162.4 |
167.0 |
Source: SDS
Table 2.4: Structure of Average Monthly Expenses of Population per Household, GEL
| Cathegory of Expenses | Year | |||
| 1997 | 1998 | 1999 | 2000 | |
| On food | 92.6 |
103.1 |
110.6 |
95.3 |
| On clothing | 10.6 |
12.6 |
13.4 |
21.3 |
| On energy & heating | 12.0 |
13.1 |
12.7 |
9.2 |
| On housing | 15.6 |
21.1 |
23.9 |
9.4 |
| On health care | 6.0 |
5.4 |
7.2 |
14.2 |
| On education | 2.0 |
6.0 |
5.9 |
6.8 |
| On leisure | 1.5 |
6.9 |
6.1 |
15.1 |
| On public transport | 8.8 |
13.1 |
12.7 |
16.0 |
| On car | 20.0 |
43.1 |
53.0 |
55.6 |
| Personal expenses | 37.9 |
10.3 |
11.4 |
14.6 |
| Transfers, saving & debts | 30.1 |
17.1 |
13.5 |
19.8 |
| TOTAL | 237.1 |
251.8 |
270.4 |
277.3 |
Source: Data for years 1997, 1998, 1999 are from the State Department of Statistics;
Data for 2000 is from the GORBI Household Survey of Georgia.
If we exclude income derived from the illegal appropriation of goods (e.g. armed robbery), common sense would suggest that people couldnt 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)
| Categories of Income |
% of Households who Earn, GEL: | ||||||||||
| 0-10 | 11-20 | 21-40 | 41-60 | 61-100 | 101-150 | 150-200 | 200-300 | 300-400 | 400-600 | 600-1000 | |
| Own earnings | 1.50 |
4.65 |
9.29 |
16.34 |
20.54 |
12.14 |
11.39 |
13.04 |
3.15 |
4.35 |
2.55 |
| Paid by State (salaries, pensions, subsidies) | 2.82 |
28.47 |
25.60 |
13.91 |
16.93 |
5.85 |
2.82 |
0.30 |
0.24 |
0.10 |
|
| Renting of property | 43.90 |
4.88 |
17.07 |
24.34 |
2.40 |
2.40 |
2.40 |
2.40 |
|||
| Money received from relatives | 16.77 |
14.29 |
11.18 |
25.46 |
13.66 |
2.48 |
6.83 |
4.97 |
1.86 |
1.86 |
|
| Money received from friends | 55.00 |
22.50 |
12.50 |
2.50 |
2.50 |
2.50 |
2.38 |
||||
| Interest from savings | 70.83 |
8.33 |
12.50 |
4.17 |
4.17 |
||||||
| Other sources | 78.26 |
8.70 |
4.34 |
8.70 |
|||||||
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 populations 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.
Table 2.6: Structure of Average Monthly Income of Population per Household, GEL
Category of Income |
Amount, GEL |
| Own earnings | 184.6 |
| Paid by state (salaries, pensions, subsidies) | 60.4 |
| Hiring real estates | 13.7 |
| Money encashed from friends | 3.2 |
| Money encashed from relatives | 8.7 |
| Interest from saving | 3.3 |
| Other sources | 9.1 |
| Total | 283.0 |
Source: own calculations based on data provided by the GORBI Household Survey of Georgia, Final Report, Tbilisi July 2000.
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 Georgians 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: Percentage of Georgian Households According to Income
Income between, GEL |
Percent of Households |
0-10 |
6.4 |
11-50 |
14.9 |
51-100 |
16.5 |
100-200 |
18.7 |
200-400 |
21.6 |
400-600 |
15.4 |
600-800 |
2.5 |
800-1000 |
2.5 |
> 1000 |
1.5 |
Source: GORBI; 1999 State Budget; Budgetary Office of Parliament; SDS
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 economys 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 households 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 individuals 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 governments 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 governments 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 governments 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 governments 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.
Access to Living Conditions
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 populations 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.
Table 2.8: Housing Commodities, percent
(I Tbilisi; II other towns; III villages; IV Georgia as a
whole)
| Commodities | 1997 | 1998 | 1999 | |||||||||
| I | II | III | IV | I | II | III | IV | I | II | III | IV | |
| Cold water supply | 98.2 |
90.1 |
71.1 |
84.2 |
98.4 |
91.7 |
76.4 |
90.4 |
99.1 |
92.0 |
80.7 |
91.8 |
| Hot water centralized supply | 55.7 |
39.2 |
1.7 |
22.7 |
60.2 |
15.4 |
1.1 |
28.6 |
46.9 |
28.9 |
0.5 |
21.8 |
| Water individual heating system | 14.3 |
20.4 |
6.2 |
12.2 |
21.1 |
19.0 |
5.6 |
16.4 |
15.4 |
22.0 |
6.9 |
15.8 |
| Electricity supply | 96.8 |
97.6 |
97.7 |
97.4 |
98.5 |
97.8 |
98.4 |
97.9 |
98.1 |
98.0 |
98.4 |
98.1 |
| Gas central supply | 72.5 |
49.1 |
8.9 |
38.6 |
67.1 |
37.4 |
9.5 |
41.5 |
48.0 |
30.4 |
6.9 |
31.1 |
| Gas individual supply | 30.6 |
36.4 |
47.1 |
41.1 |
44.7 |
49.9 |
45.0 |
46.7 |
39.1 |
52.2 |
42.2 |
44.8 |
| Heating central system | 53.6 |
34.1 |
2.2 |
26.1 |
57.9 |
24.9 |
1.6 |
31.4 |
47.0 |
18.6 |
1.5 |
25.0 |
| Heating individual system | 14.2 |
20.9 |
25.6 |
23.0 |
17.4 |
27.6 |
25.1 |
23.1 |
12.0 |
29.3 |
26.9 |
22.2 |
| Telephone | 57.7 |
42.5 |
17.2 |
36.0 |
56.3 |
43.5 |
15.8 |
41.3 |
65.2 |
43.8 |
16.1 |
44.9 |
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).
Table 2.9: Average Living Space per Householder, percent
(I Tbilisi; II other towns; III villages; IV Georgia as a
whole)
| Flat Surface (m2) | 1997 | 1998 | 1999 | |||||||||
| I | II | III | IV | I | II | III | IV | I | II | III | IV | |
< 20 |
13.3 |
14.6 |
4.3 |
9.7 |
3.7 |
2.5 |
0.4 |
1.8 |
3.2 |
1.9 |
0.5 |
1.5 |
20-40 |
24.0 |
12.2 |
4.3 |
12.4 |
19.6 |
12.3 |
2.6 |
9.6 |
20.0 |
13.0 |
2.8 |
9.7 |
40-60 |
24.0 |
21.7 |
8.3 |
16.5 |
28.8 |
24.6 |
10.3 |
18.9 |
25.9 |
23.8 |
9.3 |
17.1 |
60-80 |
16.5 |
15.5 |
12.6 |
14.5 |
23.6 |
16.5 |
11.5 |
15.9 |
25.1 |
15.9 |
11.3 |
15.9 |
80-100 |
7.8 |
10.8 |
15.7 |
12.0 |
9.9 |
10.4 |
18.3 |
14.0 |
10.7 |
12.5 |
16.6 |
14.1 |
> 100 |
14.5 |
25.2 |
54.9 |
35.0 |
14.4 |
33.8 |
56.9 |
39.8 |
15.2 |
32.8 |
59.4 |
41.7 |
Source: SDS
The data show that while living conditions have a long way to go before they match those in advanced societies, the overall situation is much better than that seen in most third world countries. A house is an important asset to own and contributes heavily to human development. Homeless people and inhabitants of shantytowns are not social groups known by their high probability to survive the age of 40.
The remarkable level of housing in Georgia is an inheritance from the previous system. Such inheritance can be detected not only in observing the distinctively boring and ugly architecture of Soviet apartments, but also because little additional housing has been added since the Soviet Unions collapse. Most private investment in housing has gone on repairs inside houses and apartments, not on building new ones. Figure 2.5 describes construction data of flats and houses occupied by the Georgian population.
Fig. 2.5. Percentage of Housing Construction (1921-1999)

Source: SDS
Figure 2.5 shows that housing construction peaked in 1960-1980. This had nothing to do with an official preoccupation about needing to meet any goal of universal housing. Instead, in the early sixties, the First Secretary of the Georgian Communist Party, Mr. Vassiliy Mzhavanadze, and his obedient Central Committee decided to increase Tbilisis population to over one million. The aim of this decision was to profit from the increase in material supply from Moscow to Soviet cities with over one million inhabitants (Among other things, Moscow provided funding for the construction of subway systems in cities above a million inhabitants). A program of massive apartment construction was started, which coincided with the campaign "to overtake and surpass the United States" led by Mr. Nikita Khrushchev, First Secretary of the USSR Communist Party. The massive construction of Georgian cities and towns sharply changed the ratio between urban and rural populations.
A visit to these satellite cities and towns will show the dreadful state of maintenance of most buildings. In the last decade, little, if anything has been spent on basic maintenance and many of these building are literally falling apart. As expected, families have chosen to invest their scarce savings on maintaining the interior of their apartments at the expense of maintaining the exterior. Judged on housing, Georgia does well mainly because of what it inherited from a previous system. But unless more work is done to maintain these building, sooner or later they will start to fall apart.
Employment
Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment
UNIVERSAL DECLARATION OF HUMAN RIGHTS, Article 23.
The social and economic changes that Georgian society has experienced
in the last decade has entirely altered the employment structure (Fig. 2.6). Before the
collapse of the USSR, the economically active segment of Georgian society represented an
inseparable part of the Soviet state and, as such, comprised employees (remarkably, though ironically, this category included the Nomeklatura,
which, according to Lenin's definition, was officially considered to be the "people's
servants") and peasants working in kolkhozs, not working housewives, retired
persons and students. The number of self-employed and unemployed people was low. Over the
course of economic reforms, this has changed.
Fig. 2.6. Structure of Employment
Source: SDS
The percentage of employed males exceeds that of females by about 10 percent whereas the unemployment level is approximately the same (Fig. 2.7). This is because of the number of economically active females that choose to be housewives rather than to join the labor force. The official unemployment rate is high at 16.8 percent. According to GORBI, however, if only employment with a monetary remuneration is considered, the unemployment rate rises to as much as 25.6 percent. The more palatable official unemployment figure comes from considering employment with both monetary and non-monetary remuneration.
Fig. 2.7. Macroeconomic Structure of Employment According to Gender

Source: SDS
The fall in formal employment opportunities that followed the collapse of the economy in early 1990 was brutal, particularly in the economys main industrial branches. Figure 2.8 shows the changes in employment taking 1990 as a base year.
Fig. 2.8. Number of Employees in Main Industrial Branches

Source: Budgetary Office of Parliament
The sharp plunge of employment possibilities in the main industrial branches of the
economy was accompanied by a similar trend in the non-industrial sectors. Figure 2.9 shows
the changes over time in employment in the non-industrial sectors of the economy, taking
1990 as the base year. It is worth noting that the government managed to survive the slash
better than any other non-industrial branch, even despite pressure from international
financial organizations for the government to streamline itself, a condition of many
international loans. Education, in turn, managed to retain the services of almost ¾ of
its former employees.
Fig. 2.9. Number of Employees in Non-Industrial Branches

Source: Budgetary Office of Parliament
The squeeze in employment possibilities forced scores of Georgians to seek alternative ways of survival and many joined the ranks of the so-called self-employed. Table 2.10 shows both the distribution of the number of self-employed people between different economic sectors of business activity and the distribution according to gender. It is striking that over 78 percent of self-employed persons are engaged in agricultural activities. In addition, there appears to have been a shift from other sectors of employment to agriculture because this category is the only one to have grown since 1997.
Table 2.10: Distribution of Self-Employed People According to
Economic Categories and Gender, as a percentage
| Economic Categories |
1997 | 1998 | 1999 | ||||||
| Total | Female | Male | Total | Femail | Male | Total | Femail | Male | |
| Agriculture | 78.7 |
82.6 |
75.1 |
83.8 |
87.4 |
79.7 |
86.9 |
89.2 |
84.6 |
| Mining | 1.2 |
0.8 |
1.5 |
1.0 |
0.4 |
1.6 |
1.1 |
1.0 |
1.2 |
| Construction | 1.1 |
0.2 |
2.0 |
0.7 |
0.6 |
1.4 |
0.6 |
0.1 |
1.1 |
| Trade & repair | 13.4 |
11.7 |
15.0 |
9.7 |
8.1 |
11.2 |
7.9 |
7.6 |
8.2 |
| Transport & communication | 1.2 |
0.0 |
2.4 |
1.6 |
0.0 |
3.1 |
1.2 |
0.1 |
2.2 |
| Culture, sport & other services | 1.2 |
0.7 |
1.6 |
1.2 |
1.1 |
1.4 |
1.3 |
1.3 |
1.4 |
| Other | 2.0 |
2.5 |
1.6 |
1.4 |
1.8 |
1.0 |
0.6 |
0.3 |
0.8 |
| Not defined | 1.2 |
1.5 |
0.8 |
0.6 |
0.6 |
0.6 |
0.4 |
0.4 |
0.5 |
Source: SDS
To a large extent, the agricultural sector acts as a buffer against the negative
consequences of reduced employment possibilities in other sectors of the economy. People
tend to return to the family plot when employment in other sectors, particularly those
with monetary remuneration, becomes unavailable. It shows the Georgian populations
notable degree of flexibility and its ability to move and change jobs as
favorable/unfavorable economic conditions emerge.
While agriculture has provided a lifeline to many that would otherwise have gone hungry, it is also a difficult and often unrewarding activity. Self-employment in agriculture covers people who predominantly work their own land plots and, as a rule, who receive only a small monetary income (from selling produce in open markets). For many, agricultural activities in Georgia traditionally had an auxiliary character, because most of the urban population owned small land plots that provided a non-monetary income. Agricultures overwhelming contribution to the number of self-employed merely reflects the crisis in other sectors of the economy and the inherent difficulties of finding employment. Finally, the absence of monetary income for a large group of self-employed people contributes to the perpetuation of non-monetary economic relations in rural areas, areas in which a significant volume of goods and services are paid for with agricultural products. This feature prevents the capitalization of individuals businesses and limits the range of goods and services available to farmers.
The importance of agriculture as a relief valve is also observed in the differences in unemployment levels between Tbilisi and the regions (Table 2.10). Unemployment has hit the most educated sectors of Georgian society particularly hard, as scores of physicists, engineers, biologists, doctors, and artists have painfully experienced.
Fig. 2.10. Regional Structure of Unemployment

Source: SDS; United State Employment Fund
Figure 2.10 shows that unemployment levels are significantly higher in Tbilisi (about 30 percent of the economically active population) than in any other region. This is partly because a significant number of the former intelligentsia lives in the capital, as do hundreds of thousands of IDPs from Abkhazia. The latter can be found forming crowds at Tbilisi open markets, reselling simple goods like cigarettes, cheap clothes from wholesalers or food from peasants. They have created an informal "stock exchange" of unqualified labor on a per hour payment doing work like loading/unloading trucks or even just the simplest of housework.
Figure 2.11. Categories of Self-Employed People According to Their Social Status

Source: SDS
The employment structure also reflects the size of the informal economy and is consistent
with findings from the previous section (income). The number of those who call themselves
self-employed has overtaken the number in fixed employment by a large margin. The
self-employed represent a group dominated by people mostly engaged in informal activities
who often also "work" in formal jobs that pay no salaries (Fig. 2.11). When
asked why they keep going to jobs that do not provide remuneration, the answer is
invariably the need to maintain the network of relations associated to their jobs,
"just in case opportunities arise in the future".
Everyone has the right to form and to join trade unions for the protection of his interests
UNIVERSAL DECLARATION OF HUMAN RIGHTS, Article 23.4
Historians will not remember the last decade in terms of the power and influence of Georgian trade unions, which are a shadow of their former selves. Several factors account for their lack of presence in the countrys daily political and economic life. The first one, of course, is that strong unions demand active sectors of the economy; few people will notice a strike in an idle or bankrupt firm. The second factor is that the growth of the informal sector has been fuelled by people formerly employed in unionized sectors of the economy, which in the Soviet Union constituted all sectors of the economy. The third factor is that the labor unions have been unable to depart or distinguish themselves from their Soviet counterparts. The average Georgian citizen finds it difficult to notice a real difference between Soviet trade unions and those of independent Georgia. The fourth and final factor has been an insatiable desire for property, which may seem surprising if we consider that the labor unions legally inherited all real estate and other tangible property that Soviet labor unions used to own in Georgian territory. The inheritance from the former Soviet labor unions came in the form of capital assets that initiated a savage fight for its control, resulting in scores of crossed legal claims that almost paralyzed the unions.
The recent history of trade unions in independent Georgia dates to June 29, 1990, when the Congress of the Georgian Trade Unions cancelled the Georgian Republican Council of Trade Unions and founded the Confederation of Independent Trade Unions (I. Tugushi, Notes on Union of the Georgian trade unions, Tbilisi, July 2000 (in Georgia). This document has been kindly provided by the Chairmen of the Union). This Confederation declared itself the legal successor and owner of all property that belonged to the (Soviet) Georgian Republican Council of Trade Unions. It also automatically "inherited" all of its members. Almost overnight, the Confederation became an important organization uniting the overall (or almost the overall) economically active population of Georgia as 28 unions joined up. While the Confederation may have managed to acquire the existing trade unions' property, it failed to gain the souls of its members, who remained indifferent to the maneuvers of their leaders. The Confederation soon sailed into troubled waters and on August 24, 1991, the Extraordinary Foundational Congress of the Georgian Trade Unions liquidated the Confederation, founded the newly Independent Georgian Trade Unions and declared itself the successor of all existing property (This internal coup was engineered by Mr. Gamsakhurdia's government, who did not trust the Confederation leaders). This time, however, not all the leaders dutifully lined up as expected and ten unions refused to join the new structure. With the fall of the Gamsakhurdia Presidency, the days of the Georgian Trade Union were numbered and 11 days later, on January 28, 1992, a new "unifying" Congress of Georgian Trade Unions was called. The congress resulted in the Union of Georgian Trade Unions.
Disputes surrounding tangible property continue today. From 1992-1994 the Georgian Government "appropriated" the Palace of Culture, the Methodological & Training Center and the Sanatorium "Nabeglavi", transferring ownership to several governmental agencies. Touched where it hurt most, leaders of the Union fought back and on July 15, 1998, obtained a Constitutional Court ruling canceling the government decision and restoring the previous status quo. The Ministry of Defense, which by that time controlled the Palace of Culture, refused to leave highlighting, as mentioned in Chapter One, the easygoing attitude of some government employees to the justice systems rulings. The situation was further complicated by a court claim from Mr. Katsitadze, the former leader of the Independent Trade Unions, who is trying to get the 1992 congress cancelled and, of course, the restitution of all its tangible property with him as the plenipotentiary manager.
Meanwhile, the management of the Unions property is in the hands of several entities founded by the Union of Georgian Trade Unions. For instance, "Kurortinvest", a Joint Stock Investment Company, manages the Resorts of the Georgian Trade Unions (foundation capital 11.4 million GEL plus 1.461 million GEL of auxiliary real estates). Unfortunately, Kurortinvest has been unable to attract investment for improving and running up the capital assets listed in Table 2.11.
Table 2.11: Tangible Property of Union of Georgian Trade Unions Managed
By JSC "Kurortinvest"
| Region or Rayon | TOTAL | Including | |||
| Sanatorium | Pensionate | Guest House | Polyclinics | ||
Adjara |
21 |
3 |
5 |
6 |
2 |
Borjomi |
9 |
3 |
2 |
- |
1 |
Tskhaltubo |
12 |
9 |
- |
- |
2 |
Other |
10 |
6 |
1 |
- |
1 |
Total |
52 |
21 |
8 |
6 |
6 |
Source: I. Tugushi, Notes on Union of the Georgian trade unions, Tbilisi, July 2000 (in Georgian).
Two other entities also manage labor union property. The first is the Sport Society
"Shevardeni" (Falcon), which is in charge of 40 different units (worth 2.17
million GEL), including six stadiums, 14 sports complexes, nine wresting halls, two
swimming pools, two sports halls, two chess clubs, a shooting-range, an athletics hall,
and a number of tennis courts. The second is "Kurortmsheni, Ltd.", a
construction firm of trade unions with a foundation capital of 382,185 GEL. In addition,
the Union itself manages five limited liability companies (an autoservice station, the
restaurant "Phasis", 'Polygraphist' and the tourist base in Tskhneti,
"Kurortproekti"), three joint stock companies (the hotels
"Bakhtrioni", "Amirani", "Karishkhala") and other firms with
a total foundation capital of 2.623 million GEL. Thus, as of July 1, 2000, the Union of
Georgian Trade Unions directly or indirectly owned and managed tangible property and real
estates worth 16.575 million GEL, the current value of the property inherited from the
Soviet trade union system.
On paper, the might of the Union of Georgian Trade Unions knows few boundaries and includes the following organizations: (i) Adjara Republic Council of Adjara trade unions; (ii) Abkhazia Coordination Council of Abkhazia trade unions; trade unions of (iii) Aviation workers; (iv) Local industry & housing workers; (v) Architecture, construction & building material industry workers; (vi) Bank, financial and insurance companies employees; (vii) Education employees; (viii) Geology, geodesy & cartography employees; (ix) Energy & electro-technical workers; (x) Trade and consumption cooperation workers; (xi) Defense & radio-electronic industry workers; (xii) Communication workers; (xiii) Resort & tourism workers; (xiv) Subway workers; (xv) Engineering industry workers; (xvi) Medical workers; (xvii) Light industry workers; (xviii) Metallurgy & mining industry workers; (xix) Academy of Sciences employees; (xx) Employees of small enterprises (xxi) Oil and gas industry workers; (xxii) Coal industry workers; (xxiii) Footballers; (xxiv) Journalist & mass media employees; (xxv) Railway workers; (xxvi) Sportsmen & sport employees; (xxvii) Autotransport & road workers; (xxviii) Mechanical engineering & agroindustry workers; (xxix) sailors; (xxx) Paper & wood processing workers; (xxxi) Army service & public associations employees; (xxxii) State aviation workers; (xxxiii) Agriculture & food industry workers; and (xxxiv) Chemical, medical industry & heating system workers.
In practice, however, the situation is different. The Unions structure is little more than a relic of ancient times because it unites trade unions of workers and employees of industries that either do not exist any more, or whose participation in the economy has sharply reduced, like in the state aviation and mechanical and engineering industries. In addition, Georgian trade unions have no power in Abkhazia.
The number of trade union members curiously coincides with number of employees registered by both the Tax Department and the Social Welfare system. Such a coincidence fuels the suspicions of those who claim that trade union membership is a formality, aimed at extracting payments through membership dues. In some cases, the allegations may have a point. No trade union meetings have been called in scientific institutions, universities, and other entities for the last ten years. Most of the population does not even know whether or not they belong to a trade union.
The Unions have also been unable to extend their reach to the scores of employed people in the new branches of business activity who often remain unprotected. Workers in cafés, restaurants or stores can be fired at any time without reimbursement, as he/she has no labor or employment contract. Another area in which unionization could make a difference is in international organizations, which usually pay local staff salaries five to ten times less than those of foreigners working in the same job. Our conclusion is that the current situation of the labor unions is cause for concern. While there are some labor union leaders who sincerely try and improve working conditions and terms, the Union of Georgian Trade Unions appears to be more submerged in disputes about property distribution and more dedicated to managing its assets than in commenting on Georgias current process of socio-economic transformation. As a result, only 27.6 percent of the Georgian population trust trade unions, 61.3 percent do not trust them at all and 11.1 percent has no idea about their existence (Georgian Lifestyle, GORBI, TBILISI, 2000). Georgian trade unions exist in a virtual space isolated from current problems affecting the country, an inauspicious long-term strategy for organizations whose main goal ought to be the well-being of their members. In the new economy, Unions have a role that, if played with conviction and honesty, will earn them back the recognition of their member workers (Like in the cases of Zestaphoni Ferroalloy Plant, Chaturmanganese Mines and Madneuli Metal Enrichment Plant. Trade unions participated in these conflicts and today the Trade Union of Metallurgy & Mining Industry is active and trusted by its members).
Access to Land and Property
No one shall be arbitrarily deprived of his property
UNIVERSAL DECLARATION OF HUMAN RIGHTS, Article 17.2
Access to property in general and land in particular has always been a touchy issue. The first decree signed by the government of the First Georgian Republic in 1918 was the "Decree on Private Property of Land" while the first decree signed by the Council of Red Commissars in 1921 was the "Decree on the Nationalization of Land". Land use rights constitute important criteria that distinguish a liberal economic system from a totalitarian one. Different property regimes also appear to influence productivity. In 1988, the state owned 87 percent of agricultural land, and it provided 16 percent of crop production, while the 13 percent of land that belonged to rural householders produced 84 percent of agricultural domestic produce.
The process of re-distributing collective 'kolkhoz' lands to rural and urban householders was implemented between 1990-1995. Georgias recent laws on "Property of Agricultural Lands" and on "Land Property" accelerated the process of land privatization and transferred a significant portion of former state land to private individuals for nothing. Over 790,000 ha (or 26 percent of overall agricultural lands) have been privatized including 54 percent of high-quality arable land. Table 2.12 shows the structure of Georgias Land Fund. The whole land fund accounts for 6.95 million ha but only 43.1 percent or 2,991,100 ha of this is agricultural.
Table 2.12: Land Fund of Georgia
Types of Land |
Distribution |
|
| Area, thousand ha | Percentage of total | |
TOTAL |
6,949.4 |
100.0 |
Arable land |
785.0 |
11.3 |
Perennial plantings |
277.5 |
4.0 |
Pastures |
1,928.6 |
27.8 |
Agricultural lands in total |
2,991.1 |
43.1 |
Forests |
2,006.6 |
28.8 |
Other |
1,951.7 |
28.1 |
Source: Jeane Zonenashvili, Land resources of Georgia, Georgian Center for Strategic Studies and Development, 1998, Bulletin # 16, p. 24-43 (in Georgian)
The average size of a given households land plot, in either villages or towns, is not large. Figure 2.12 shows that there is a tendency for the average area of cultivated land to increase. Yet the tendency is weak. The explanation lies in the countrys underdeveloped land markets.
Fig. 2.12. Average Area of Cultivated Land Plots per Household

Source: SDS
Fig 2.13. Distribution of Main Land Plots According to Property Rights

Source: SDS
Georgian agricultures capacity to organize itself with minimal input from the government and to operate in an almost cashless environment helped the country to overcome the most tragic and difficult stages of the civil war without experiencing massive famine. Even at its most stretched, Georgian agriculture was able to supply markets with a basket of basic produce. According to USAID, however, the current private land plots are too small for profitable production (Recent Development of Georgia's Agriculture, Report of the Strategic & International Studies, Washington D.C., 2000). Consolidation may be needed. But a cashless environment and underdeveloped land markets are not helping the capitalization of farms, the consolidation of the sector, or investments in agriculture. In addition, cultural factors hinder the alternative option: setting up cooperatives which would benefit from economies of scale. In Georgia, the word "cooperative" still spells Soviet kolkhoz to a peasant. His/her bad experience from this type of production unit means that farmers prefer to enjoy any possible benefit to working alone than to join his/her property to any joint venture.
We will now briefly turn our attention to the privatization process of Georgian State assets. This is one of the last decades most important pieces of public policy, because access to capital is an important tool in breaking the poverty trap and climbing the social ladder. Indeed, the World Bank, in its Poverty and Income Distribution study for Georgia, confirms that different capacities to access capital assets correlates to differences in poverty levels, a finding in line with what common sense would suggest.
To privatize state assets in a post-communist country is to seriously redistribute wealth, because previously everything belonged to the State and, at least in theory, the State belonged to the people. With the collapse of the Soviet Union, people should have been given back their corresponding share of State assets, yet results have been disappointing. Even more disappointing is the fact that international organizations have been unable to halt or to rectify what appears to have been a biased and unfair distribution of wealth generously peppered by outright misappropriation of state assets. And yet international organizations actively designed the privatization process, often making their financial assistance dependent on its implementation.
Thousands of pages have been written about the Georgian privatization process. The National Human Development Reports of 1995-1999 discuss the issue at length, as do nearly all the quarterly issues of the magazine Georgian Economic Trends. We are not interested in repeating here all that bulk of data. We will briefly describe the opportunities opened to help common citizens get back his/her portion of State assets, wealth that, in one way or another, he/she helped to create while working under the Soviet System.
Mr. Zviad Gamsakhurdias government took the first important step in the privatization process. According to a Special Decree of the President, it declared Georgian householders who had forwarded the corresponding notification to be the owners of their flats in municipal buildings. From 1992 onwards, the privatization process in Georgia gathered steam by means of the "Law on Privatization of State-Owned Enterprises", a piece of legislation later saddled with more than 60 amendments issued to coincide with different economic swings. On May 30, 1997, the Parliament of Georgia adopted a new Civil Code and a new "Law on Privatization of State Property". The latter was legislation largely concerned with regulating the privatization of large enterprises.
Originally, the idea was that the population at large would participate in the privatization of medium- and large-sized enterprises via special voucher auctions. By 1997, about 87 percent out of a total of 5,310,414 vouchers had been distributed to the Georgian population. The voucher model of privatization called for vouchers to be exchanged for securities of state-owned enterprises that were being transformed into joint stock companies. By this process, vast segments of the population were supposed to end up owning shares in the enterprises.
These vouchers and securities were accumulated in special investment funds, intended as vehicles that would later foster the creation of a secondary security market. Yet these funds bought (or exchanged via vouchers) just 0.3 percent of shares in former state enterprises and, surprisingly enough, a significant portion of their investments went on unpromising enterprises that were waiting for the "Law on Bankruptcy" to be implemented. Many of these investment funds went the way of that described in Box 2.3.
Box 2.3. Pension Funds, Voucher, and
Privatization
In the exercise of his
rights and freedoms, everyone shall be subject only to such limitations as are determined
by law By the beginning of 1997 a number of pension funds has been registered at the Ministry of Justice. The main goal of these funds was to manage vouchers intended for pensioners, their exchange for securities of promising enterprises, the collection of dividends and their distribution among shareholder pensioners. These funds were very active in auctions obtaining control of enterprises by means of paying with vouchers. The results for the smallholders of privatization vouchers were disastrous because the State failed to protect them against evident fraud. Pension Fund # 1 was registered in the Vake-Saburtalo Court of Justice as a limited liability company. Soon after this, all vouchers obtained by the fund were registered under the name of physical persons, not the fund. From the very beginning, Pension Fund # 1 appropriated vouchers belonging to pensioners and used them to support particular individuals and their shareholder rights on the board of joint stock companies. These affairs bore more resemblance to episodes from "The Godfather" interspersed with touches from "The Three Stooges" than the efficient and cold greed of Mr. Gecko in "Wall Street". Operations were often unsuccessful as pension funds had little idea about how to manage a firm. Internal and savage rivalries gave birth to management boards and these contributed modestly to ruin the newly acquired firms. Finally, outright mismanagement did the rest. |
The Georgian population at large has seen little of these former state assets. By the end
of the first stage of privatization (the second stage comprised selling state enterprises
directly to actual investors), the Georgian population owned the same amount of
tangible property as it had at the start of the process. When the second stage of
privatization is taken into account, which among other things is characterized by scores
of tenders with only one participant, the privatization process appears to have resulted
in an unfair re-distribution of wealth of a magnitude not seen since the nationalization
of property by the Red Commissars in 1921.
Access to Social Welfare & Insurance
Everyone, as a member of society, has the right to social security...
UNIVERSAL DECLARATION OF HUMAN RIGHTS, Article 22.
The populations access to social welfare and insurance depends overwhelmingly on the States capacity to attain proper levels of tax collection and to ensure that resources collected are properly managed. Neither a strong informal economy nor crippling levels of mismanagement are factors that favor the local populations access to social welfare and insurance. A strong informal economy robs the State of crucial resources needed to properly endow the social welfare and employment funds, while mismanagement, of course, decreases the efficiency of how scarce government resources are spent.
The previous issue of the NHDR 1999 noted that budgetary revenues fell short of targets set for the period 1995-1998. This performance was repeated in 1999, as Figure 2.14 shows.
Fig. 2.14. Approved and Executed Revenues to the State Budget (in USD)

Source: NHDR-1999; The Law of Georgia on 2000 State Budget of Georgia; Report on Execution of the 1999 State Budget of Georgia, by Government of Georgia, 2000.
In real terms, the revenue goal for 1999 was set at almost the same level of revenues obtained in 1998. Yet even this exhibition of targeting prudence was insufficient and revenues in 1999 were again below the planned targets. The State Budget received 124.3 million USD less than in 1998. As with almost every other category of national budget spending, the Special State Funds suffered from the shortages in resources. They received approximately the same amount of Georgian laris as in 1998. If the devaluation of the Lari in late 1998 is taken into account, the figure received for 1999 is 30.84 million USD less than in 1998 (Fig. 2.15).
Fig. 2.15. Revenue to the Special State Funds

Source: NHDR-1999; The Law of Georgia on 2000 State Budget of Georgia; Report on Execution of the 1999 State Budget of Georgia, by Government of Georgia, 2000.
The overall execution of the Special State Funds was equal to 89.74 percent in 1999. The United Social Welfare Fund achieved an execution of 87.93 percent, the United Employment Fund of 95.05 percent and the State Road Fund of 96.03 percent. Table 2.13 shows the revenues expected and the revenues actually obtained in 1999, as well as those planned for the year 2000 for the three funds previously mentioned.
Table 2.13: Revenue to the Special State Funds of the Consolidated
Budget
(Including payments by budgetary organizations)
| Type of revenues | Amount, Thousand GEL | percent of Execution (in 1999) |
||
| 2000, Approved | 1999, Approved | 1999, Execution | ||
| TOTAL | 208,780 |
171,200 |
153,640 |
89.74 |
| United Social Welfare Fund, including | 151,280 |
132,300 |
116,331 |
87.93 |
| Social tax of employers | 142,980 |
126,300 |
111,858 |
88.56 |
| Social tax of citizens | 5,300 |
5,400 |
4,143 |
76.72 |
| Other revenue | 3,000 |
600 |
330 |
55.00 |
| United Employment Fund, including | 5,300 |
3,800 |
3,612 |
95.05 |
| Social tax of employers | 5,300 |
3,800 |
3,570 |
93.95 |
| State Road Fund, including | 52,200 |
35,100 |
33,697 |
96.03 |
| Excise tax on vehicle gasoline | 24,700 |
15,000 |
12,606 |
84.04 |
| Tax on roads | 10,000 |
7,000 |
7,193 |
102.76 |
| Tax on vehicles | 5,500 |
4,500 |
3,916 |
87.02 |
| Tax on vehicles entering Georgia from abroad | 10,500 |
7,500 |
8,246 |
109.95 |
| Other revenue | 1,500 |
1,100 |
1,736 |
157.82 |
Source: The Law of Georgia on 2000 State Budget of Georgia; Report on Execution of the
1999 State Budget of Georgia, by Government of Georgia, 2000
Since one of our interests in this section is the populations capacity to access unemployment benefits, we will direct our attention to the performance of the United Employment Fund (Table 2.14). A brief look at the official numbers provided shows that the fund received 3.6 million GEL in revenues. If this amount were to be distributed among the 344,600 unemployed (based on the WTOs "loose criterion"), the United Employment Fund would have been able to provide each unemployed person 10.48 GEL per year. Not a lot. But since the fund only has 10,900 people or 3.16 percent of those unemployed registered, the available resources could have allowed for each unemployed person to receive as much as 331.28 GEL per year or 27.61 GEL per month.
Table 2.14: Balance Sheet of the United Employment Fund
| Cetegories | Amount, Thousand GEL | Percent of Execution |
||
| 2000, Approved | 1999, Approved | 1999, Execution | ||
| Revenue, including | 5,300.0 |
3,800.0 |
3,611.5 |
95.04 |
| Social tax of employers | 142,980.0 |
126,300.0 |
3,569.7 |
93.94 |
| Difference on 01.01.1999 | - |
- |
41.8 |
- |
| Expenditures, including | 5,300.0 |
3,800.0 |
3,592.0 |
94.53 |
| Subsidies to unemployed | 1,800.0 |
1,000.0 |
948.9 |
94.89 |
| Programme of temporary employment of unemployed | 750.0 |
1,850.0 |
1,713.8 |
92.64 |
| Co-financing of vocationally education | 750.0 |
750.0 |
641.5 |
85.53 |
| Promotion of employment | 1,700.0 |
- |
- |
- |
| Costs of temporary public works | - |
500.0 |
498.7 |
99.74 |
| Organizational & administrative expenses | 300.0 |
950.0 |
929.3 |
97.82 |
Source: The Law of Georgia on 2000 State Budget of Georgia; Report on Execution of the
1999 State Budget of Georgia, by Government of Georgia, 2000
However, only 948,900 GEL was spent on payments to unemployed people, an equivalent of 87.06 GEL per year or 7.25 GEL per month per registered individual. Organizational and administrative expenses were nearly as high as payments to unemployed people (948,900 versus 929,300 GEL). Considering the amount of people in each respective payroll, the United Employment Fund appears to provide incomparably greater benefits and working conditions to its managers (and possibly employees) than to the unemployed people on its books. This situation has been a subject of concern for the present authorities and the managerial expenses for 2000 have been cut to 300,000 GEL. We sincerely applaud any measure that can increase the efficiency of spending and thus increase the capacity of the United Employment Fund to reach the scores of unemployed Georgians who are in real need of a monetary supplement.
We will now turn our attention to the performance of the United Social Welfare Fund. Here, the situation is far from acceptable and measures aimed at increasing efficiency of spending, and therefore the populations access to welfare benefits, may require more than just keeping managerial expenses in check.
Table 2.15: Balance Sheet of the United Social Welfare Fund
(Including payments by the budgetary organizations)
| Categories | Amount, Thousand GEL | Percent of Execution |
||
| 2000, Approved | 1999, Approved | 1999, Execution | ||
| Revenue, including | 189,430.0 |
177,300.0 |
166,113.4 |
93.69 |
| Social tax of employers | 142,980.0 |
126,300.0 |
111,858.1 |
88.56 |
| Social tax of citizens | 5,300.0 |
5,400.0 |
4,192.9 |
77.64 |
| Other revenue | 1,500.0 |
600.0 |
330.0 |
55.00 |
| Transfer from the Central Budget | 39,650.0 |
45,000.0 |
44,705.1 |
99.34 |
| Difference on 01.01.1999 | - |
- |
5,027.3 |
- |
| Expenditures, including | 187.930.0 |
174,300.0 |
162,884.1 |
93.45 |
| Pensions | 175,249.0 |
159,440.0 |
148,537.9 |
93.16 |
| Subsidies to temporary disable employees | 2,900.0 |
5,940.0 |
5,900.0 |
99.33 |
| Subsidies to IDPs for maternity | 500.0 |
- |
- |
- |
| Reimbursement of electro-transport travel cost to group I invalids | 420.0 |
420.0 |
334.4 |
79.62 |
| State program on children social protection | - |
1,000.0 |
1,000.0 |
100.00 |
| Organizational & administrative expenses | 4,861.0 |
4,000.0 |
4,000.0 |
100.00 |
| Communication expenses | 4,000.0 |
3,500.0 |
3,111.8 |
88.91 |
Source: The Law of Georgia on 2000 State Budget of Georgia; Report on Execution of the 1999 State Budget of Georgia, by Government of Georgia, 2000
While Table 2.15 shows that 148.5 million GEL was paid as pensions in 1999, the State Department of Statistics official figure of registered pensioners who are entitled to welfare benefits is 900,000. Each pensioner should, on average, have received about 165 GEL for the year or 14 GEL per month. Which, indeed, is the approximate level of pensions in Georgia. Taking these numbers into account, it defies comprehension why arrears in pensions increased in 1999 (see Table 2.16). The explanation for this puzzle, as was highlighted in an investigative TV program, appears to be beyond the power of arithmetic (see Box 2.5).
In a famous (though unfortunately unfinished) novel of Gogol ("Dead Souls"), the main character, a Mr. Chichikov, travels the Russian provinces signing contracts left, right and center to buy serfs that were already dead. These contracts were part of an innovative and temporarily profitable fraud scheme. Mr. Chichikov appears to have his contemporary followers within the management of the Social Welfare Fund, as Mr. Akaki Gogichaishvili has suggested. Mr. Gogichaishvili is the leading reporter on "60 Minutes", a "Rustavi-2" TV program made up of independent journalistic investigations on sensitive issues, including corruption and mismanagement of government funds. Each Sunday, at 9 p.m., Mr. Gogichaishvili and his team present their findings to the public. With regard to the management of the Social Welfare Fund these were definitely troubling. According to "60 Minutes", the Ministry of Social Welfare, in close collaboration with the Post Bank, paid a significant number of pensions to people who, on the day of payment, were already dead. The total amount of these illegal payments was equal to 25 percent of the total money allocated to be spent on pensions. The sum of payments to the Dead Souls closely matches the increase in payment arrears. This alleged fraud convinced the President that the situation regarding the management of social welfare funds was extremely serious and demanded radical actions. The Ministry of Social Welfare was the first casualty and was abolished in the Spring of 2000. The Prosecutors Office has yet to start investigating this matter. |
Finally, Table 2.15 shows that the executed subsidies to temporarily disabled employees
was 5.9 million GEL or 99 percent of the planned target, an excellent performance that was
even improved in terms of organizational expenditures, which amounted to 4 million GEL and
were 100 percent executed. If "Communication expenses" are also taken into
account, operational expenses amount to 4.4 percent of total expenditures, a relatively
acceptable percentage, though above the 2.4 percent allowed by law (Indeed,
4-4 percent in optional costs is a target that most projects of international
organizations fail to meet. The Georgian law, however, is even tougher and demands costs
be kept to 2.4).
Table 2.16 describes the officially registered arrears in so-called "protected articles" of the State Budget. A protected article is a prioritized budget item. Expenses in "non-protected" budget lines are dependent on first securing enough resources to cover the expenses in all protected articles. In short, the government is supposed to refrain from spending in, for example, management expenses or buying new vehicles, until all protected articles have been paid in full. Reality, however, indicates otherwise.
Table 2.16: Arrears of the 1998-1999 State Budget in Protected Articles
Item |
1998 |
1999 |
January 1, 2000 |
|||
Million GEL |
% |
Million GEL |
% |
Million GEL |
% |
|
| Remuneration for labor, including | 23.9 |
18.9 |
29.1 |
24.3 |
53.0 |
21.5 |
| Salaries | 14.1 |
11.1 |
14.6 |
12.2 |
28.7 |
11.7 |
| Social taxes | 6.2 |
4.9 |
9.1 |
7.6 |
15.3 |
6.2 |
| Pensions | 53.0 |
41.9 |
24.6 |
20.6 |
77.6 |
31.5 |
| Pensions for law enforcement staff | 0.1 |
0.1 |
6.0 |
5.0 |
6.1 |
2.5 |
| Transfers to local budgets | 8.3 |
6.6 |
12.2 |
10.2 |
20.5 |
8.3 |
| State Medical Insurance Company | 8.6 |
7.2 |
8.6 |
3.5 |
||
| Health care program | 14.3 |
11.3 |
6.8 |
5.7 |
21.1 |
8.6 |
| State Program for disabled citizens | 0.7 |
0.6 |
0.7 |
0.3 |
||
| Interest rate of National Bank | 0.006 |
0.0 |
0.006 |
0.0 |
||
| Salaries to IDPs | 7.3 |
6.1 |
7.3 |
3.0 |
||
| Subsidies | 3.5 |
2.8 |
2.9 |
2.5 |
6.4 |
2.6 |
| Expenditures on food | 16.7 |
13.2 |
11.0 |
9.2 |
27.7 |
11.2 |
| Stipends and other dues | 0.7 |
0.5 |
1.2 |
1.0 |
1.9 |
0.8 |
| TOTAL | 126.6 |
100.0 |
119.7 |
100.0 |
246.3 |
100.0 |
Source: Report on execution of the 1999 State Budget, Budgetary Office of Parliament, Tbilisi, 2000 (in Georgian).
Arrears in pensions continue to grow unchecked. Total official arrears in pensions were 53 million GEL by the end of 1998, and with the addition of a further 24.6 million GEL in 1999, amounted to 77.6 million GEL by January 1, 2000. The total arrears for all protected articles reached 246.3 million GEL. During the 1999 fiscal year, arrears increased by a staggering 105.8 percent.
The situation regarding the management of the employment and welfare funds has been chaotic. Those worst affected have been the poorest and most vulnerable members of society, for whom even the meager supplements provided by these funds can make the difference between having something to eat and not. We are happy to see that the newly reformed Ministry of Health Care and Social Welfare is apparently trying to improve the current situation. As a first step it has changed all managers of the United Employment Fund and United Social Welfare Fund. Second, the Ministry appointed a special Council of Trustees and Group of Experts to find alternatives to improve how resources are managed. Third, the Ministry appears genuinely interested in cooperating with different international organizations like Counterpart International, USAID, and the World Bank to reform the social welfare funds. Fourth, some measures have been introduced to increase the populations confidence in how these funds are managed. Among them we notice a project to appoint controllers elected by the population to all social welfare departments. The newly hired managers have already introduced a new computer system to register pensioners, which has increased transparency. The system quickly revealed several tens of thousands of Gogols "dead souls". Finally, officials in the Ministry are considering the possibility of replacing the existing social welfare system with one of state insurance. Corresponding draft laws have been forwarded to the Parliament.
These measures are precautionary, measures intended to minimize the occurrence of mismanagement and corruption. No doubt they are very much needed. But the existence of low corruption levels relies on that of a judicial system capable of acting efficiently and relatively fast in the event of illegal activities. A fully functioning and independent court system would discourage most of those in managerial positions in the welfare and social funds to misappropriate public money because efficient, clean and agile courts would introduce the novel idea that corrupt activities can and will be swiftly punished.
Conclusions
This chapter has looked at what appears at first sight to be conflicting data. We have observed that if monetary and non-monetary income is taken into account, the average Georgian households total income has been improving over time. To our surprise, we have also observed that equality in income distribution not only improves when non-monetary income is accounted for but that it appears to have improved since 1996. These tendencies are being observed in an environment of salaries below the poverty line, increasing arrears in pensions and salaries, and in the presence of welfare and pension funds that provide little more than a meager monetary supplement to a fraction of those in need.
Looking at the structure of employment, we find that the number of so-called self-employed members of society has overtaken the number of employed people, which is anything but surprising in view of the debacle in those sectors that used to employ the most people. The self-employed, however, are a long way from the notion of the vibrant entrepreneur profiting from new opportunities a market economy affords. An overwhelming percentage of these people have ended up working in agriculture, a cash-starved sector with limited opportunity to grow. Most of those who are self-employed turn to the informal sector for a much-needed lifeline to make ends meet.
The chapter also provided official data about reported income and expenditures and highlighted that in real terms, official figures for both income and expenses decreased, even at a time when the economy was growing at a breakneck speed. Either people have become more suspicious over time about reporting income and expenses, or the origins of their source of income have changed. We are inclined to believe that the second explanation is the more plausible and that the informal economy may be gaining ground.
From the private individuals narrow perspective, a dollar obtained in the informal economy does not differ from a dollar obtained in the formal sector. The costs of doing business in the formal economy appear to be high and originate in the many hurdles a dubiously competent tax department, a crippling bureaucracy prone to corrupt practices, and the relative capacity of the court system to enforce contract law all pose. All these factors are invitations to remain in the informal sector, invitations that find strong synergies in the populations low levels of trust in formal structures of governance. We note with concern that 56.8 percent of population do not trust courts of justice, 64.0 percent do not trust the Parliament, 79.4 percent mistrust the tax administration, 80.2 percent distrust customs offices, 62.1 percent the Presidency, 65.6 percent the chairmanship of Parliament, and so on and so forth (Georgian Lifestyle, GORBI, TBILISI, 2000).
But for society as a whole, that same dollar obtained in the informal economy is different from the one originated in a formal exchange. The answer for this is as simple as could be imagined. The formal dollar can be taxed and, in doing so, resources obtained to enable the government to supply an array of goods and services that private individuals will not provide in efficient quantities. Among these services, we can mention a decently paid police force whose members do not have to demand bribes right and left to ensure enough to eat for himself and his family; a minimum level of maintenance of schools, which today are in an appalling state; the provision of minimum (basic) health care and monetary supplements for those most in need; and the need to revamp the court system to ensure existing laws are enforced. We note with apprehension that these goods and services will not be supplied at proper levels in a country with a vibrant informal economy. We want to emphasize that the governments capacity to ensure a significant array of human rights depends on its capacity to provide a proper supply of public goods. The former will not work without the latter.