The old economic (and not only economic!) order has come to an end, and any effort to revive it appears futile, at least for now and from today’s perspective.
This statement inevitably brings another major question to the forefront: what type of economic system is truly effective both in overcoming accumulated challenges and in ensuring forward progress?
Here too, operating with old “isms” and classifications is likely of little use. The decisive factor is rather the structure of relationships that helps us achieve tangible results. From this standpoint, it is evident that approaches in economics are converging, moving closer to one another, and, even if a precise “golden mean” has not yet been reached, there is at least a clear movement in that direction.
Finding the right answer to this question is particularly important for us, because in designing a sound national economic system we must “catch several rabbits at once,” namely:
• through the management of economic security, strengthen national security;
• be able to manage ongoing internal and external economic crises;
• activate a broad social compromise on key economic and social issues; and, at the same time,
• move forward and modernize without losing the necessary pace.
To accomplish these and other objectives, we must clarify our positions on a number of issues, including protectionism in economic policy and the role of the state, both of which, clearly, are acceptable within reasonable limits.
From the same perspective, it is also necessary to reconsider to what extent capitalism itself helps us achieve the above goals. It should be noted that capitalism does not equate to a dogmatic or conservative approach. On the contrary, under capitalism, economic thought is in constant motion, searching for new directions of development and therefore does not imply stasis, or, as some would call it, “stability.”
In general, what we are witnessing today is a critique of the previously dominant economic neoliberalism, as well as the rejection of a number of its principles. In particular, the supposed benefits of unlimited deregulation have become a subject of serious debate, as have the self-regulation of trade and supply chains, the complete independence of central banks, the disregard for state borders, and so on. These and other processes have largely contributed to the outflow of industrial potential from the First World to the Third, while also posing new challenges for compact countries like ours in securing a proper place in the new global economic redistribution.
Another defining feature of these processes has been the diminishing role of the state under laissez-faire relations, the ideology of the free market, an economy without state intervention, and the muting of its voice. This, in turn, has significantly fueled the challenges that led to the emergence of the so-called polycrisis, the multiplicity and simultaneity of crises, worldwide. Accordingly, the existing economic system became outdated, failed to withstand pressure, and broke down, thereby accelerating the time for change, reformatting, and the emergence of something new.
From the perspective of Georgian national security, another lesson produced by global experience deserves particular attention.
Specifically, practically unrestrained market instincts, which not only reshaped the balance of power between geopolitical and geoeconomic centers, have also led to a significant increase in inequality within societies. This, in turn, contributes to the rise of populism, radicalism, and extremism in domestic political life, all of which are directly linked to the resilience of security systems. It has become increasingly evident that continuing life as before is no longer possible, while cosmetic changes would only further aggravate the systemic crisis.
It should also be noted that the alternative which is sometimes presented as a healthy replacement for harmful obsolescence represents yet another risky experiment. This alternative is essentially characterized by the politicization of the economic market, whereas one of neoliberalism’s main dogmas was the maximum separation of politics from the economy. For greater clarity, a clear example of the politicization of the economy at this stage is the United States under the Trump administration, tightening of tariffs, interference in business processes, state acquisition of shares in private companies, and so on. However, fairness requires noting that the politicization of the American economy, in the form of economic autarky, had already begun during Biden’s presidency through the adoption of protectionist legislation aimed at infrastructure development.
Europe is also attempting to develop along this line, although it is hindered by the problems briefly mentioned in the second part.
The current situation has one major advantage: the dismantling of the old creates a qualitative opportunity to build something new. Naturally, time will show how fully and flawlessly this opportunity will be used.
What is clear, however, is that within the mix of existing trends Georgia must develop its own optimal Georgian version of global “best practices,” one that suits us, benefits us, and serves us.
When discussing trends in the contemporary economy, one clearly discernible reality stands out: the growing voice of the state in economic processes, its particular “return” or comeback to key economic matters.
In practice, we are dealing with a new version of étatism, associated with the state’s expanding control over the economic rights and status of both ordinary citizens and business entities. This process, which, among other things, resonates with economic autarky and the modern revival of nationalism, is still in a phase of development. This also means that a new equilibrium between, on the one hand, the state’s defining role in the economy and, on the other hand, a free market economy has yet to be clearly identified.
Yet, the above-mentioned “return” requires an especially delicate approach. It is evident that, under today’s challenges, it would be practically reckless for the state to renounce its rightful place in the economy, just as stepping aside would amount to irresponsibility, since it would only deepen existing challenges.
At the same time, the delicacy of the issue lies precisely in ensuring that the foundations of the market economy, its complex fabric, are not undermined; that human talent and labor are properly valued; and that the development and modernization of the state are actively supported.
Clearly, addressing this complexity requires a high-order art, namely, a statesmanlike approach and way of thinking in economic policy. At the level of framework principles, such state-oriented thinking implies the following:
1. Clear, economically reciprocal relations with other states and non-state actors. One must clearly understand “what you give” and what becomes “yours” as a result of that exchange;
2. A correct understanding of the dynamics between government and business. Here, it must be fully recognized that the primary indicator of business success is profit. Accordingly, business interests and efforts are primarily directed toward maximizing profit;
3. Given this clear profit orientation of business, the establishment by the state of appropriate incentive-based legislative frameworks. Their purpose is to bring the government’s policy agenda and business’s clearly understood market logic as close to each other as possible, thereby jointly promoting public-state development. From this perspective, legislation should define rules of behavior for business entities so clearly that acting otherwise would simply not be in their interest.
With the caveat that we are already operating under a new version of étatism, the role of the state, beyond the formulation and implementation of economic security policy, extends to the execution of key programs essential to national development. In my view, these programs should be directly and purposefully targeted at such segments as:
(a) Diversification and intensification of trade;
(b) Incentives and facilitation for attracting investment;
(c) Issues related to external assistance.
It is evident that, for a country in Georgia’s position, a development-oriented, coordinating role of the state would facilitate both leapfrogging and predictable progress simultaneously. I would further add that such state activism would have a contagious effect, both on the technocratic elite and on foreign partners, encouraging their more active participation in the country’s economy.
As for the involvement of foreign partners, this could well take the form of an analogue to the so-called “Marshall Plan.” It should also be taken into account that any such program is largely linked to geopolitical affiliation, as was the case with Japan, South Korea, and Taiwan: all three cases formed part of the United States’ strategic approach in East Asia.
It is noteworthy that globally, between USD 5 and 7 trillion annually, also representing approximately 5–7 percent of global GDP, is required to achieve sustainable development. Of this amount, an additional USD 4 trillion is needed by developing economies alone. Somehow, we must position ourselves among the recipients of these funds, and, ideally, among the frontrunners.
Practice and experience also demonstrate that merely receiving funds is not sufficient for development-oriented national progress. It is precisely in such circumstances that the role of the state is, alongside attracting financial resources, to be able to:
1. Facilitate necessary social transformation;
2. Maintain commitment to long-term objectives;
3. Make difficult choices;
4. Enable breakthroughs based on knowledge and technology;
5. Ensure so-called “blended” financing, i.e., leveraging funds through a combination of loans, public–private partnerships, grants, and other sources.
Analysis by Victor Kipiani, Geocase Chairman
