Chapter5
Concluding Remarks: Shadow Economy and Access to Human
Rights
All are equal before the law and are entitled without any discrimination
to equal protection of the law
UNIVERSAL DECLARATION OF HUMAN RIGHTS, Article 7.
In previous chapters we attempted to describe the access of the population to a number of agreed human rights, such as the right to life, liberty and security of persons or the right to freedom of expression or the right to be presumed innocent until proved guilty. At the same time, the chapters described the access of the population to an array of social services such as social security, health care, and education. Both types of socially perceived rights have been enumerated in the Universal Declaration of Human Rights signed more than 50 years ago.
We believe that the previous chapters convey a clear message. No doubt, the majority of Georgian households is facing a tough time. We all know this fact well, though we lament that after so many years, the skin have grown thick and the innumerable stories of deprivation and misery suffered by the Georgian population, stories that regularly show in newspapers, television, or just those that we hear in the street, appear to have lost their shock value. These are the stories from the daily life of those that belong to that 40% of the population whose monetary and non-monetary income fall below the minimum subsistence level; or the stories of those that belong to that 30% of Georgians with no access whatsoever to the health care system (which are similar stories of half the population that accounts for a scanty 8% of total national expenditures on health care); these are also the tragic stories of those families whose children died in public hospitals as a direct result of their appalling state characterized by poor hygiene and lack of minimal supplies; or the desperate stories of old pensioners that depend heavily on meagre pensions that are not paid for months; or just the stories of the sad and unjust discrimination of those youths whose families do not have enough to afford the illegal system of payments that dominate the entrance to higher institutions. It is healthy to keep these anecdotes in mind when reviewing data and indicators, for it is easy to forget that behind the statistics presented in this report there are thousand of human tragedies that numbers and figures cannot describe.
The previous chapters, however, also convey the message that while the situation of the Georgian household is bad, it is still not critical. Georgians are managing to survive and are doing so remarkably well if one takes into account the economic and institutional background against which they have to make ends meet. The combined monetary and non-monetary income of the average Georgian citizen has been increasing steadily since 1996 and for the first time in the year 2000 appear to have surpassed the minimum consumption basket. True, this average includes a 40% of the population that does not get their income above minimum subsistence levels and a 1.5% with incomes above 1000 laris. Distribution of income in Georgia is still unfair and biased. But except for a significant 6.5% of Georgians that are locked in a poverty trap, income distribution appears to be improving since 1996. The main reason for this trend is the significance of the informal economy as a source of income for the average household. The informal economy seems to have an equalizing effect because the middle segments of the population rely substantively on informal activities as sources of supplementary income.
In fact, Georgians have achieved a remarkable ability to detach from the formal structures of governance in their pursuit of income and access to social services. Numerous statistics and publications appear to agree that the informal economy is at least responsible for 35% of total economic activity though some estimates put the figure well above that. In addition, we believe that the informal economy seems to be growing in importance and in some areas have dwarfed the size of the formal sector. For example, the estimation of out-of-pocket education expenditures is in the order of 476.7 million GEL or 16 times greater than the whole of public expenditures for the sector. In the case of public health, the state and international agencies have achieved a de-facto privatisation of health care services, which are characterized by an impressive degree of informality. This de-facto privatisation, which is just the default situation in view of the lack of state support to hospitals and clinics, allows staff to obtain a supplement to their meagre salaries by means of under-the-table payments and oblige patients to purchase (mostly in the black market) almost all medical supplies necessary to perform the medical treatment in question. The participation of the government is limited to the supply of crumbling buildings, water, electricity (irregularly) and limited amounts for some medical programmes. As for income, we notice that the level of formal salaries, the increasing underreporting of income and expenditures, the increase in average incomes, and the apparent increase in equality of income distribution as a result of the equalizing effect of informal activities suggest that the shadow economy is gaining ground. All things together, we believe that Georgians are good at finding ways to survive the crisis and in some cases even improve their living conditions in spite of the weak government performance to establish an environment conducive to competition and business and its poor capacity to provide for social services.
The capacity of the average Georgian to make use of informal structures to obtain income has come handy at times when the state suffocates the population under a web of debatable economic and social principles, like in the soviet past, or when it is unable to set and enforce rules of the game that make unattractive the risks (and subsequent costs) of going informal, like in the current situation. The capacity of Georgians to profit from the shadow economy is nothing new and comes as an inheritance from the previous regime. In fact, we believe that a casual knowledge of the dynamics of the formal and informal economy under soviet rule and the many forms by which corruption took place at that time would have been more than sufficient to warn the architects of the transformation process about the critical need for establishing the institutional fundamentals that allow free-market democracies to achieve increasing levels of welfare. The shock economic therapy applied to Georgia would have benefited enormously if it had been implemented alongside similar radical measures in those institutions that minimize the cost of enforcing contracts or the costs of being a DHL (decent, honest, and law abiding) citizen (The term was first introduced by Professor Alex Rondeli, a respected professional and scholar, as well as a generous contributor to National Human Development Reports of Georgia). The growth of the informal economy and the current prevalence of corrupt practices represent the continuation of the informal economy and practices that flourished under soviet rule. Today, these activities and practices are prospering in the institutional vacuum that results from the limited capacity of the government to perform its duties. During Soviet times, the provision of some agreed level of social services (education; health care; transportation system) was a matter of political significance for the system and thus acted as a partial contention mechanism for corrupt practices. Even though the Party structure was involved in the mismanagement of public funds, corruption seems to have never been allowed to overtake the system completely so as to severely disrupt the provision of social services. The system needed them at least for purposes of propaganda. Today, however, the political need for providing similar levels of social services appears to have weakened while the current efficiency of the law enforcement bodies has not been sufficient to keep corruption at acceptable levels. Under these conditions, the informal economy finds fertile ground to expand.
A Brief Discussion about the Organization of the Informal Sector
Having emphasized the contradiction between a vibrant informal sector and the capacity of
the government to provide public goods, we believe that it is worth a few paragraphs
discussing some of the characteristics of the informal economy in the Georgian society. In
doing so, we turn the attention to the clan structure which governs crucial sectors of the
Georgian economy. As it was mentioned earlier, the remarkably capacity of the Georgian
citizen to prosper by means of informal activities is nothing new. To the contrary, during
Soviet times Georgians were famous for their ability to break the systems rules and
for having a vigorous informal sector running in parallel to the formal soviet economy.
The late 70s and early 80s in the USSR were known as the "stagnation period", a time when the Soviet economy had been mortally wounded with gross inefficiencies in production and years of political repression. Inefficiencies in production had arisen in part as a by-product of a rigid top-down management of the economy. The decision-making process concerning the development of Soviet republics, economic sectors and even specific enterprises took place in Moscows ministerial offices. The system put in place the best incentives one could have ever imagined for the widespread use of corrupt practices. There was an enormous gap between the almost unlimited power and the limited official salaries of ministerial bureaucrats. As it is observed today, the informal economy provided apparatchiks and others with an additional and attractive source of income. The informal economy, however, demanded a dual accounting system of cash and clearing in order to allow the diversion of inputs into the informal economy. By default, in a planning system, the meeting of yearly production targets depends on the availability of previously identified inputs (capital and labour) for production. The system "clears" by default since all inputs are assigned in advanced to specific productive sector and the sum of their outputs should meet the production targets. The double accounting was needed because except for outright theft, there was no other way to cover the selling of, lets say cement (e.g. which was supposed to be used in the construction of a bridge) to a private individual that wanted to build his own dacha. The double accounting also created double moral standards. One was the official, communist moral for public interventions and mass media; the other, a moral of mutual guarantee for accomplices involved in informal (illegal) activities (In this sentence the term "illegal" refers only to what was illegal under Soviet rule. To do private business was illegal under the past regime, something that many people in the west could not understand or beleive). In this environment, Moscow bosses could trust only their direct relatives when profiting from the shadow economy. And vice versa, these special channels often resulted in Georgian employees having extraordinary influence in Moscow ministries. As the latter possessed monopolistic rights in distinct economic branches, a corresponding monopolistic structure of clans developed throughout the Soviet Union. In general, each clan consisted of a protector in Moscow, a contact person between the Moscow protector and the local body, and the head of the local business structure. In Georgia, as in the Caucasus in general, clans proved to be remarkably adept at dominating the informal sector. They also showed that medieval and feudal structure in which the "vassal of my vassal is not my vassal". In other words, each clan representative had a distinct space around him and had to take care of people included within that space. In Georgia this principle was enforced by historically strong family traditions and code of friendship.
The collapse of the USSR not only decapitated clans from their Moscow protectors but also caught many members of that semi-legal Soviet establishment on the wrong foot. The collapse of the Soviet rouble brought down almost to zero the value of their savings and businesses, as only few among them had been cautious enough to convert their wealth into hard currency (For many, the value of the informal business was dependent upon the existence of the formal soviet order. For example, public buses in Tbilisi had been informaly "privatised" during Soviet rule, as it was not unusual to pay for a ticket and get no receipt. In a nutshell, the bus driver would pay cash for having the right to drive a bus. He would get his investment back by pocketing a share of tickets sold (for which he would not give receipt to passengers). Inspectors would let the scheme run as long as they receive a share of the informal income. The upper ranks of the public transportation authorities were also involved and aware of these "privatisation" of buses for otherwise such a system could never survive. The collapse of the Soviet system brought the value of this business close to zero for those that were not strong enough to formalize their previously informal property rights over the bus in question in the new economic system). The years of civil war that followed the declaration of independence were not conducive for business activities, be those formal or informal, and Georgian clans had to wait until the disbandment of the armed groups. Once the country achieved minimum levels of stability, the informal sector picked up pace again, this time in an environment characterized by serious institutional deficiencies. If during Soviet times there was a risk of being caught in the latest crusade against profiteers, that risk was inexistent under the new rules of the game because doing private business was now the order of the day. Those clans that entered the new economic order with dollars in their pockets and/or with their web of connections and obligations in the right place made fortunes. It was not illegal any more to do business and the state was too weak to enforce the basic foundations of a market economy, namely the definition and enforcement of who owns what (property rights), who may do what to whom (civil and penal code), and who must pay whom to have their interest protected (property rights and the law of the contract). The downing of the new market era in Georgia was "open season" for those having the right connections and the decision to grab in one way or another their share of assets from a moribund state. Many failed to understand the implication of these institutional weaknesses on the plan of economic reforms. Had international and donors organizations paid a bit more attention to variables outside those of the "accounting" sphere, they would have realized that the privatisation program they were promoting and celebrating was firmly on its way to end up in history as one of the most biased processes of wealth re-distribution in Georgia of a magnitude only comparable to the nationalization of land and other assets by the Red Commissars in 1921.
Time has passed and clans have also evolved. The most powerful ones appear to have attained a certain degree of specialization exercising monopoly (though sometimes oligopoly) power over certain sectors of the economy. For instance, the imports of cigarettes and oil-related products have clear domains and could be unhealthy for outsiders to step into these areas. In general, the import and trade sector are characterized by a predominance of an informal economy divided and controlled by different clans. The division and control of the market is a dynamic process and entails an underground competition between different clans. In general, this competition can be bloody though conflict resolution often takes place behind doors and few cases have reached the mass media (One of them concerns 20 months of cross juridical disputes in court and investigation by Georgian law enforcement bodies of two competing tobacco-importing firms: "Omega" and "Elisi". At the end of the process, Omega got the upper hand and Elizi found itself out of the market. Another well-known example is related to a 2-year juridical dispute (that included several civil and penal court processes) concerning the control on the company "Astra Digomi". which imported cars from Germany. However, the great majority of deals between different clans is concluded in extreme secrecy and rarely became public). Clans in control of importing goods such as cigarettes and oil (among others) often posses a sophisticated structure for distribution. Smuggling is rampant and deals and bribes to customs officials are anything but common currency. The Georgian smuggling model shares features of the "Soviet model": it is maintained together with and not against the customs and law enforcement bodies officers. Sometimes, however, things got out of control and by 1999 smuggling was one of the main reasons behind the poor execution of the tax revenue plan, which was a modest one under any standard.
A second type of clans has found their niche in those branches of the Georgian economy that appear to be competitive on international market. In capturing these sectors, they participated actively in the privatisation of state property. The reports of the Chamber of Control provide a fascinating description of the many ways by which the best connected got state assets at bargain prices while discouraging competition during the bidding process (report on Execution of the 1998 State Budget, Chamber of Control, Tbilisi, 1999 (in Georgian); Report on Execution of the 1999 State Budget, Chamber of Control, Tbilisi, 2000 (in Georgian)). Here, a distinction should be made. Some clans acquired assets with the intention of investing and profiting in sectors in which the Georgian economy appears to have comparative advantages. Others, however, just exploited their immunity and the lack of capacity of law enforcement bodies to benefit from trade policies. Several examples come to mind but, perhaps, the export of scrap metal is a case in question. The International Monetary Fund demanded free scrap exports among its conditions of further financial assistance. The government agreed. The boom in export of scrap material that followed was fabulous and resulted in a rush to get hold of whatever metal was around. Often valuable and even working equipment, wires, cables got stolen and sold abroad (Including even high voltage and strategic intrastate 500 kV electricity lines. In autumn, 1999 11 km of electric regional lines were stolen and disappeared. The investigation proved that an anonymous company that drove the wire away to an unknown destination had hired these workers. The managers of the company evaporated. The names of these managers never became public. It is difficult to beleive that such a major operation could have been carried out without some kind of "protection" from well-positioned people). The situation got so out of control that officials of the Georgian Railway, worried about the decimation of their inventories, forwarded an appeal to the President of Georgia proposing that the number of ferrous scrap buying-up centres be limited and buying non-ferrous scrap banned. The conditions put forward by the IMF, however, minimises even this degree of flexibility in decision-making.
Finally, we note a third type of clan showing a more "regional" approach with no specific specialisation. Such type of clans attempts to control the overall business activity in a concrete region. These clans can be active enough and oblige other "specialized" clans interested in business activities in their regions to cede a certain share of their income for protection and services rendered. Independently of their chosen niche of specialization, clans often show a similar structure consisting of a lobbyist in the state or regional or local government and/or Parliament, the head of the clan, clan members with a strictly determined place in the overall structure, a legal cover in the form of an officially registered joint stock or limited liability company (or a group of companies), and finally (of course) a bank necessary for all legal and semi-legal transactions and even money laundering.
It would be a great mistake, however, to consider clans as evils or dark forces that result in corruption, mismanagement and a flourishing shadow economy. Clans are just organizations that have developed according to a given cultural background (strong family ties) and the pressures imposed on citizens by the formal institutions of governance. Sometimes, clans as organizational units proved invaluable to survive tough periods. In the years of civil war and general debacle, clans and strong family ties were responsible for an informal social safety net that saved scores from hunger. Family units and clans in the form of a combination of family units helped each other taking care of those members temporarily or permanently without sources of income. Every member collaborated with her or his share, whatever the size or its contents. These strong family links and sense of duty/responsibility to protect our relatives saved the day at a time the government was almost of a formal character and the social safety net was completely absent.
These same informal organization units have proven an efficient way of dealing with the poorly conducive business environment in Georgia. It should not surprise foreigners, much less Georgians, the fact that businesses will have strong incentives to remain in the informal sector or incur into illegal practices or request the help of a clan member that happen to enjoy a strategic position in a Ministry when the costs of doing business formally is unbearable high and adherence to the law proves difficult even for those committed to it. We have heard innumerable stories of Georgians attempting to import goods and finding impossible to avoid the bribing of custom officials who have the power to retain goods at the port of entry for long periods of time. We are familiar with those cases of Georgians that have received several visits from competing taxmen, all interested in having a slice of the companys profit, all of them threatening to close the enterprise unless their demands are satisfied, and the pressure resulting from the sum of all of them making a profitable business unprofitable. We have heard the stories of foreigners and Georgians setting up business in the country only to being brought to court by incumbent firms (with oiled connections with law enforcement bodies) for inexistent tax evasion or other alleged transgressions. Some of these processes have taken years to resolve, have been costly, and have pushed firms to the verge of bankruptcy. And we are aware of the innumerable bureaucratic hurdles to be faced in the process of obtaining permits and clearances for business operation. Often, only an under-the-table payment and/or the help of friend in the department in question have the power to push papers forward.
In this kind of institutional environment, clans represent a viable organizational structure that pool risk among members and protect their businesses against the threats and abuses likely to happen in a society with weak or corrupt law enforcement bodies. The incentives for all clans is to grow in power and influence within and outside government units since these factors heavily affect in the short term the share of market captured by the clan in question and in the long term the survival of the business or set of enterprises themselves. It should not surprise that conflict resolution between clans take place more often than not outside the judicial courts given the still limited capacity of the court system to reach a decision and enforce its own rulings. And it should not surprise either the importance of reputation and honour as observed in Georgian clans. Conflict resolution outside the formal system is facilitated when the parties in question consider each other likely to honour their own words and agreed commitments. Thus trustworthiness is not only a matter of honour, and this is a factor important enough in Georgian culture, but also makes threats and promises of rewards credible scenarios and therefore keep uncertainties to a minimum and help reducing the costs of enforcing contracts. If you are sure that in a given transaction the opposing party will reward you as agreed or will retaliate if you fail to honour your part of the deal, the decision to respect the contract is a matter of weighting previously known cost and benefits from rewards and retaliation plus any long-term damage from lost credibility. In contrast, in societies in which the market mechanisms have resulted in outstanding levels of social welfare, disputes about contracts and property rights are dealt in formal courts and in the majority of cases, courts provide the most attractive (least expensive) way for conflict resolution. In these societies, law enforcement bodies still face plenty of problems and shortages in material and moral capacities but nevertheless they manage to constitute credible threats to those inclined to break the law. For example, in advanced western societies the possibility of being caught smuggling goods (e.g. cigarettes) into the country is real and this constitutes an expected cost that discourage many (though not all) from engaging in such income generating alternatives. In a society in which property rights are clear and enforced, the civil and penal code are respected, and the law of the contract is not prohibitely expensive to enforce in formal courts, the advantages of the clan structure for doing profitable business is rather limited. Without disregarding the potential benefits of having an uncle working at the Ministry of Finance, a good business strategy, talented human resources, and access to affordable capital will be more significant factors affecting business profitability.
Clans, therefore, should not be taken as the root cause of a worrying level of corruption and a flourishing informal economy but rather as structures that have become efficient organizational units at doing business in the current institutional environment. Take away the incentives that foster the clan as an attractive alternative to survive in the rough world of Georgian business and the clans may survive as identifiable units reflecting the long standing Georgian tradition of strong family ties but not as determinants of market share, dominance and power.
Concluding remarks
In the last section of this report, we would like to come back to a set of basic and simple messages that underlined the contents of each chapter. The first is that Georgia has gone to great lengths in ensuring respect for human rights and except for the Baltic countries, it is a leader among all former Soviet republics. Indeed, the contents of this report would have been subjected to automatic censure in other former Soviet republics and it would have been even difficult to recruit local expertise because of the fears of reprisals. In Georgia, however, this type of literature is allowed to circulate in the same way as strongly critical TV investigative programmes are allowed to be broadcasted. True, there is a lot to improve in the area of political rights and the right to a free press but it would be a mistake to overlook the magnitude of the governments achievements in these areas.
The second message is that the supply of agreed social rights (education, health care, social security, etc) is dependent on (i) the capacity of the government to set up a conducive business environment that expand the size of the economic cake and benefit from the comparative advantages of Georgia in the world economy, and (ii) the capacity of the formal institutions to steer increasing volumes of economic activity into the formal sector because it is in this sector where taxes can be levied.
And the third message is a basic derivation of the second one immediately described above. Even though the informal economy has provided a lifeline to many that otherwise would have been in dire troubles, an expanding informal economy is nothing to celebrate and cheer as far as we are concerned with the provision of human and social rights. A country with a vibrant informal economy will be most probably at its second best in terms of overall social welfare. In their fight for influence and power, clans will not face incentives to contribute towards the establishment of a competent and efficient judicial system. For the powerful ones, conflict resolution and deals that perpetuate the dominant position of a given clan occur outside the formal judicial system. From the other end, those member of clans positioned at high decision making-levels will probably face weak incentives for establishing competent law enforcement bodies if the existence of such institutions constitute a serious threat to the clans sources of income.
But the overtaking of formal institutions by interested groups and a continuing weakening of the government capacity to provide for the kind of public goods that ensure the access of the population to political and social rights is a process that cannot go forever, for at some point the same process can and will threaten the very basic structures that currently allow the most powerful clans to dominate strategic sectors of the economy (See also Ramaz Othinashvili, Nature, reasons and consequences of shadow economy, Georgian Centre for Strategic Studies and Development, Bulletin # 37, 2000 p. 3-25 (in Georgian)). That point is simply the point at which the state and it formal structures of governance lose relevance as vehicles for collective decision-making and the pursuit of increased levels of social welfare. Though it takes time to gather steam, the erosion of the government capacity to perform its inescapable duties, and therefore its legitimacy, is a process that often provides clear warning signals. We seem to observe some of these in remote (and not so remote) corners of Georgia in which the government has failed to pay pensions for months, where teachers do not get their salaries for half a year, places where electricity supply has been totally absent in winter and summer, places in which bartering has replaced the lari as a vehicle for exchange, places where the court system has little to say in the way conflicts and disagreements are resolved. When this erosion reaches critical levels, the political and economic system that allowed such a situation to unfold is often replaced by a highly authoritarian structure that combats the existing interested groups and/or replaces them by their own. If this is bad news for the incumbent clans, it is disaster for society as a whole. Civil and political liberties are likely to be the first collateral casualties of such a change in governance systems.
We cannot but hope that Georgia will continue to undertake those measures that will strengthen the institutional foundations upon which markets and civil and social rights depend on. And we hope that in this process Georgia will prove wrong those that sincerely overwhelmed by the impressive amount of circumstantial evidence affirm that the overall post-Soviet space is characterised by a total lack of political will to fight corruption (Louise Shelley, The current state of corruption in the NIS, Transnational Crime and Corruption Center, Washington, DC, 2000). And we are convinced that in that process of revamping formal institutions Georgia will improve its currently appalling corruption ranking, a figure that calls for serious doubts about the aspirations of the country to join the club of European advanced nations (Corruption rank, World Audit, released in Internet in December, 1999).
Table 5.1: Corruption and Democracy Rank of 149 Countries in 1999
Country |
Corruption Rank |
Democracy Rank |
Country |
Corruption Rank |
Democracy Rank |
| Denmark | 1 |
1 |
Romania | 60 |
56 |
| Slovenia | 22 |
23 |
Croatia | 71 |
105 |
| Estonia | 24 |
21 |
Moldova | 72 |
53 |
| Hungary | 28 |
28 |
Ukraine | 72 |
102 |
| Czech Republic | 36 |
25 |
Armenia | 77 |
98 |
| Poland | 40 |
27 |
Russia | 79 |
105 |
| Lithuania | 46 |
30 |
Georgia | 81 |
89 |
| Slovakia | 49 |
47 |
Kazakhstan | 81 |
120 |
| Latvia | 55 |
31 |
Kyrgyzstan | 84 |
112 |
| Belarus | 55 |
121 |
Yugoslavia | 87 |
132 |
| Bulgaria | 60 |
49 |
Uzbekistan | 92 |
134 |
| Macedonia | 60 |
54 |
Azerbaijan | 93 |
129 |
Source: Corruption rank, World Audit. 1999
No doubt, some measures are underway to increase the capacity of the government to
implement public social policy. One of them has been to acknowledge the problem caused by
increasing levels of informal economic activity. In this regards, the President of Georgia
is heading himself a commission that should elaborate special legislation and a programme
aimed at increasing the incentives for business to go formal. Another welcome step has
been the increasing relevance that the topics of corruption and organised crime are having
in Georgia. We have noticed the numerous international meetings and conferences that have
analysed a number of legal and managerial remedial actions and we wait anxiously to see
the practical results on the ground. We have also witnessed the creation of an
Anti-Corruption Agency staffed by an impressive list of high-rank government officials
like Mr. Vladimir Chanturia, (Chairman of the Supreme Court), Ms. Nana Devdariani, (Public
Defender (Ombudsman) of Georgia), Mr. Sulkhan Molashvili (Head of the Chamber of Control),
Mr. Jemal Gakhokidze (Member of the State Security Council), Mr. Levan Kiknadze (Vice
Minister of Finance), Mr. Gia Nodia (President of the Caucasian Institute for Peace,
Democracy and Development), and Mr. David Usepashvili, (President of the Georgian Young
Lawyers Association). It will be difficult to justify lack of results because of
insufficient human resources in view of the unusual prestige of the officials involved in
this Anti-Corruption Agency. We hope that their work will help to revert the worryingly
low levels of public confidence on formal institutions. According to public opinion
polling data, 56.8% of population do not trust courts of justice, 64.0% do not trust
Parliament, 79.4% do not trust the tax administration, 80.2% do not trust customs
administration, 62.1% do not trust the Presidency, 65.6% do not trust the chairman of
Parliament, and so on and so forth (Georgian Lifestyle, GORBI,
Tbilisi, 2000). In addition to being a serious threat to the state budget,
mismanagement is steadily eroding the confidence of citizens on the institutions of
democracy.
Political will, however, will be a necessary addition to the ongoing analysis of remedial measures aimed at combating mismanagement and decreasing the costs for business to be in the formal economy. At some point, the array of technical measures designed to improve business conditions in Georgia, increase government revenues, and stop the unacceptable leakages in social funds (among other things) will demand taking courageous decisions that will affect one powerful clan or another. It would be naïve to believe that combating corruption and the establishment of measures to bring informal businesses into the formal economy are actions that will result in no casualties among powerful groups. If the overall Georgian society is taken as a whole, such measures are win-win actions since their benefits will definitely outweigh the costs. But in the short run, there will be many that will be painfully touched where it hurts most and one should expect strong resistance from a number of different quarters. In supporting these efforts, we hope, wish, that this time the role of international organizations will be as active on ensuring budgetary equilibrium and debt-repayment as on strengthening irreversibly the institutional foundations that allow markets to operate and democracy to remain a valid alternative to collective decision making. Yes, we are aware that we ask for radical changes in the way the Georgian economy has been operating since independence. But these changes have to happen and will likely happen. We have no doubts that those at the highest decision making levels are committed to transform Georgia into a prosperous democracy thus entering the books of history as leader with the stature of David the Builder rather than contemporary followers of Mr. Chichikov.