Whither Economic Policy?
By Vladimer Papava, Senior Fellow at Rondeli Foundation, Professor
In the contemporary world, it is impossible to find a country that does not have a more-or-less severe confrontation between the economic policymakers and the academic economist. Post-Communist Georgia is no exception to this. In such a situation, the question of why this conflict has arisen in the first place must be answered.
The essence of the problem is that quite often economic policy is not simply distanced from economics but in certain cases, is even in conflict with its basic tenets. Such an economic policy, which is not in convergence with economics, we would call a “non-economic economic policy” or to make it even shorter – “non-economic policy.”
In order to determine the main source of the primacy of non-economic policy is, it is necessary to consider three types:
In terms of the first type of non-economic policy, those who determine the economic policies do not take the knowledge created by economic science into account.
The second type of non-economic policy takes place when the economic policymakers do heed the knowledge created by economic science, yet the knowledge itself is false.
The third type of non-economic policy is a case when economic science has not yet studied certain important economic phenomena, hence economic policymakers would be unable to utilize the hitherto non-existent knowledge, even if they were highly motivated to do so.
The first type of non-economic policy could arise due to the following reasons:
- The economic policymakers are not professional economists or are economists of extremely low qualification and, therefore, are not sufficiently familiar with the achievements of economic science but sometimes also even with the basics of economics.
- The economic policymakers may be sufficiently qualified economists but do not find it beneficial to reflect on the achievements of economics in economic policy.
It is noteworthy that politicians very often look at their country as though it were a company which is why it is considered that the key positions determining economic policy must be filled with managers rather than professional economists. A famous article by a Nobel Prize-winning economist, Paul Krugman, entitled A Country is not a Company, clearly shows that there are principled differences between a country and a company. Regrettably, a large number of politicians do not realize this. In reality, the place for managers (not to mention businessmen themselves) is in business, not in politics.
When the governing persons authorized to make political decisions in the field of economy do not possess a specified economic education, their lack of knowledge is usually compensated by the professionalism of the individuals who prepare draft decisions for the governors. However, even in this case, it is entirely possible to get a situation when the governors of economic policy, despite the abovementioned drafts, will only consider the political viability of their decisions when making them.
Even when the governing persons authorized to make decisions regarding economic policy do in fact have an economics education, it is still often times the case that they do not use the knowledge accumulated by economics when making decisions, but rather base them entirely on the considerations of political advisability.
This phenomenon of political viability being prioritized over economic science during the formulation of economic policy is explained by the world-renowned “Public Choice” theory.
The cause of the second type of non-economic policy are the mistakes made by economic science itself. According to the Nobel Prize-winning economist Joseph Stiglitz the 2007-2009 global financial and economic crisis is a clear example of this. More specifically, the approaches of economic science towards economic regulations turned out to be incorrect.
The connections between economic science and economic policy (or, more precisely, public policy) can be compared with the links between biology and medicine or physics and engineering on the basis of which a conclusion is reached that if a mistake is made in medicine, this is not the fault of biology, just as it would be unjustified to blame physics for the mistakes made in engineering. I believe that such an interpretation is not fully correct since if the root of the mistake turned out to be within biology, it would consequently show up in medicine as well.
A clear example of the third type of non-economic policy is the transition from a command economy to a market economy in the absence of an appropriate economic theory.
The phenomenon of the dissemination of cryptocurrencies around the world when economic science has yet to create a more-or-less grounded theory about it is no less noteworthy. According to the Nobel Prize-winning economist, Robert Shiller, the economic mechanism for the emission of cryptocurrencies remains unclear to this day. Despite this, the former Managing Director of the International Monetary Fund and the current President of the European Central Bank, Christine Lagarde, is optimistic about the future of cryptocurrencies. This creates a danger that the third type of non-economic policy will be formed with regard to cryptocurrencies.
It is notable that at the beginning of the post-Communist transformation of economies, the third-type of the non-economic policy was taking place before the period of transition to a market economy was concluded. Thereafter the first type of non-economic policy is brought to the forefront. This is confirmed by the experiences of post-Communist Georgia, too.
At the beginning of 1992, radical economic reforms started to be undertaken using the Polish version of the well-known “shock therapy.” More specifically, the so-called “Balcerowicz Plan” was used which owes its name to its author, the Vice Prime Minister and Minister of Finance of Poland at the end of the 1980s and the beginning of 1990s, Leszek Balcerowicz.
For Georgia, however, the “Balcerowicz Plan” was destined to fail from the outset since at that time, unlike Russia and Poland, Georgia did not have one of the main instruments of “shock therapy” – its own currency.
After the so-called Rose Revolution of 2003, the supremacy of Libertarian views in the economic policy of the Government of Georgia is connected to the name of Kakha Bendukidze who arrived in Georgia from Moscow at the invitation of the government. The economic policy of Georgian Libertarianism was based on the abolition of a large number of licenses and permits necessary for starting a business, the reduction of the tax burden and so on.
Parallel to the supposedly Libertarian reforms, the United National Movement government violated human rights, limited the independence of media and systematically violated property rights, by which it managed to perform a forced redistribution of property. Taking these factors into account, unfortunately, the reforms undertaken by the then Government of Georgia carried the façade of a libertarian nature, yet according to my position as well as that of other researchers, it was neo-Bolshevik with its content. It is clear that Georgian Libertarianism, with its essence, is a type one non-economic policy.
From 2016, the economic policy of the Government of Georgia was based on the “4-Point Plan of the Government” which was a clear example of economic primitivism as it did not at all envisage the development of the real sector of the economy and was mainly oriented on developing tourism in Georgia.
An even clearer example of economic primitivism is the privatization of the building of the Ministry of Economy and Sustainable Development of Georgia which took place in 2015. As a result, to this day the Ministry is forced to rent a building.
On the contemporary stage of economic development, it is especially important for Georgia to formulate and implement an economic policy that will be based on the achievements of economic science for which it is necessary for the government to intensively cooperate with economists.
- The Russian Exclave of Kaliningrad and the Lithuanian "Sting"
- In line for the candidate status, Georgia will get a European perspective. What are we worried about?
- The break-up of the Hungarian-Polish coalition - an opportunity for the EU
- Failed Tskhinvali Referendum
- The War and Georgia
- "Autocratic Peace"
- “Rural Orbanism”- Polarization as a determinant for Hungary's political future
- Illegal Presidential Elections in the Tskhinvali Region: Why Bibilov Lost and What to Anticipate in Future
- How to Respond to Russian Ultra-Orthodox-Historic-Hegemonism?
- The War in Ukraine and the UK’s New Role in Eastern Europe
- What Will the Abolition of the OSCE Minsk Group Bring to the South Caucasus?
- The Presidential Election in France and Europe’s Political Future
- Will Pashinyan Be Able to Make a Drastic Turnaround in Armenian-Azerbaijani Relations?
- Why Has the Abkhaz Side Become More Active on Social Networks?
- Why a Neutral Ukraine Is Not on Putin’s Mind (Ukraine’s Neutral Status Is Getting Closer, but What Does It Mean to Putin?)
- Europe's energy future - challenges and opportunities
- Uncontrolled Mass Immigration and the Position of the Georgian Government
- Changes in Putin's propaganda narratives since the Russian invasion of Ukraine
- Ukraine will soon embark on a path of practical integration into the European Union. What about Georgia?
- Positions and Actions of Turkey in the Russo-Ukrainian War
- NATO’s possible expansion in Northern Europe and its significance for Georgia and Ukraine
- Political Winter Olympics in Beijing
- What Is behind Putin’s Sudden Gambit in Ukraine?
- Abkhazia in 2021: Energy Crisis, New “Minister” and Political Controversy
- L'Europe pourra-t-elle éviter le “déjà vu” ? (France, President of the Council of the European Union, and the Tensions in Eastern Europe)
- US-Russia Relations and the Issue of Ukraine
- The New Targets of Ramzan Kadyrov’s Regime
- What are the Prospects of the Eastern Partnership Summit Set on 15 December?
- The Upcoming EaP Summit - Why the Trio Initiative Should Finally Find Its Way
- What Will the Post-Merkel Era Mean for the EU’s Russia and Eastern Neighbourhood Policy?
- What Lies Behind the Growing Cooperation of the Georgian and Hungarian Governments
- “Doberman” as a Minister: Inal Ardzinba’s Prospects and Challenges
- The Belarus Crisis: How to Enhance Our Resilience Against the Russian Strategy for Its Near-Neighborhood
- EU-Poland’s worsened relations and what it means for the EaP
- Lessons From Germany on Political Culture: What Georgia Can Learn From the German Parliamentary Elections
- Belarus One Year On: An Insecure Regime Under Russian “Protection”
- Why Did Iran-Azerbaijan Relations Become Strained?
- Russia’s Parliamentary Elections - What Can Be Said About the Regime’s Stability
- An Emerging Foreign Policy Trend in Central and Eastern Europe: A Turn from China to Taiwan?
- Vaccination: “To Be, or not to Be”…
- Can Georgia use China to balance Russia?
- Sharia Patrols in Kabardino-Balkaria: A Growing Trend or a Local Conflict?
- Belarus’ exit from the Eastern Partnership and what to expect next
- Pacta Sunt Servanda: Agreements must be kept
- Associated Trio, What is Next?
- Formation of a New “Political Elite” in Abkhazia - Who Will Replace the Old “Elite?”
- The symbolism of the EU flag and why a true Christian would not tear it down and burn it
- Securitization of the Arctic: A Looming Threat of Melting Ice
- What Should Georgia Expect from the NATO Summit
- The Issue of Abkhazia and the Tskhinvali Region in the Context of NATO and European Union Membership
- (Re)Mapping the EU’s Relations with Russia: Time for Change?
- USA, Liberal International Order, Challenges of 2021, and Georgia
- Georgia's transit opportunities, novelties and challenges against the backdrop of the pandemic
- ‘Vaccine Diplomacy’: A New Opportunity for Global Authoritarian Influence?
- Deal with the ‘Dragon’: What Can Be the Repercussions of the China-EU Investment Agreement?
- Georgia’s Application for European Union Membership
- A New Dawn for Transatlantic Relations under Biden’s Presidency: What Are the Hopes for Georgia?
- Who did the judge sentence: Navalny, Putin or Russia?
- Biden’s Conundrum
- 2020 Developments in Abkhazia: “Elections,” the Pandemic and Deeper Integration with Russia
- The Hungarian Crisis: Is the EU Failing against Authoritarianism?
- Could Belarus Become a Prelude to the Great Polish-Swedish War 400 Years Ago?
- COVID 19 Pandemic Economic Crisis and Reducing the Instability of Georgia’s National Currency
- Escalation of the Karabakh Conflict: Threats and Challenges for Georgia
- Some Thoughts on the Use of the Term „Post-Soviet Space“
- Georgia’s European Way During the Period of Pandemic Deglobalization
- Turkey's Caucasus Policy Against the Backdrop of the Latest Armenia-Azerbaijan Tensions
- Khabarovsk Krai Protests as an Indicator of the Russian Federation’s Stability
- The Pragmatism and Idealism of the Georgian-American Partnership
- Independence of Georgia and the Historic Responsibility of Our Generation
- Complications Caused by the Coronavirus in Turkey and Their Influence on Georgia
- “Elections” in Abkhazia: New “President’s” Revanche and Challenges
- Consumer Crisis in the Tskhinvali Region: Food for Thought
- Georgians Fighting the Same Battle 99 Years Later
- Georgian Defense – Political Paradox and the Vicious Circle of Not Having a System
- Why It Matters: Georgia’s 'Troll Scandal' Explained
- Political Crisis in Occupied Abkhazia
- What is the Significance of Killing General Qasem Soleimani?
- What Will the New Dialogue Format with Russia Bring for Georgia?
- On the “Russian Culture Center” in Georgia
- Main Messages of Russian Propaganda
- Massive Cyberattacks On Georgia Calls For Defense And Resilience
- What do we know about the meeting of the Foreign Ministers of the Russian Federation and Georgia?
- What is the Connection between NATO and Reclaiming Abkhazia?
- New Focuses of the Anti-Occupation Policy
- Georgia's Problems are not Addressed at G7 Meetings: Who is to Blame?
- Vladimir Putin’s Main Messages in his Interview with the Financial Times
- Dugin has Come Out as a Supporter of Georgia – How Did This Happen?
- The Outcome of the European Parliament Elections - What Does it Mean for Georgia?
- Deterring Russia
- Why Local Elections of March 31, 2019 in Turkey are Important?
- Does the Principle of Strategic Partnership Work in Ukraine-Georgia Relations?
- A New Chance for Circular Labor Migration between Georgia and the EU
- Georgia’s Trade with Electricity: The Influence of Bitcoin
- Georgia’s External Trade: How to Strengthen Positive Trends
- The Risk of the Renewal of the Karabakh Conflict after the Velvet Revolution in Armenia
- Why It Is Necessary to Know the Day the Russo-Georgian War of 2008 Started
- Georgia’s Position in the Westernization Index 2018
- Why Did the Results of the G7 Summit in Charlevoix not Meet Our Expectations?
- The Ben Hodges Model – a Real Way for Georgia’s Membership in NATO
- Why did the Foreign Ministers of G7 not remember Georgia during their 23 April 2018 Toronto Meeting?
- Georgia and the American Strategy
- Putin’s Pre-Election Economic Promises: Myth and Reality
- Trade of Electricity: Successes of 2016, Reality of 2017 and Future Prospects– the Impact of Bitcoin (Part Two)
- Let Geneva Stay the Way it is
- Trade of Electricity: Successes of 2016, Reality of 2017 and Future Prospects – the Impact of Bitcoin (Part One)
- Geopolitical Vision of the Russian Opposition
- Dangers Originating from Russia and Georgia’s Security System
- Eurasian Custom Union and problems of Russian – Georgian FTA
- What Awaits the People of Gali?
- Disrupt and Distract: Russia’s Methodology of Dealing with the West
- Trojan Horse Model IL- 76 or Why Would Russia Want to Fight Georgia’s Forest Fires
- Russian Diplomats in Georgia – who are they, how many of them are there and what are they up to
- Putin’s Visit to the Occupied Abkhazia: Was our Reaction Actually Adequate?
- Pence’s Visit to Georgia: Several Lessons and What We Should be Expecting
- Is it Acceptable for Georgia to Declare Neutrality?
- Georgia’s European Perspective in the Context of EU’s Future Evolution
- Brexit Negotiations between the European Union and the United Kingdom have been re-launched: What will be their Influence on Georgia?
- How to Stop the “Creeping Occupation”
- Kremlin’s Policy in the Occupied Regions of Georgia Moves to a New Stage
- Syrian Civil War in the Context of Regional Security
- The Winnable Second Round of Russia’s Neighbors’ Struggle against Its Imperialism
- Turkey’s Domestic and Foreign Policy in the Context of Regional Security
- Post-Soviet States – Struggle for the Legitimation of Power
- Current Foreign Policy of Georgia: How Effective is it in Dealing with the Existing Challenges?
- Military Resilience - a Needed Factor for NATO-Partners
- Observations on the Agreement Reached with Gazprom
- New Russian Weaponry in the Caucasus and Its Impact on Georgia’s NATO Aspiration