I have spoken and written many times in the past about Georgia’s system of economic security. Therefore, I will not repeat what has already been said and will voice only a few additional considerations.
Quite often, the strength and resilience of an economy are measured by gross domestic product. However, this is a rather superficial metric and, as a result, creates a misleading perception of the prospects for economic development. Thus, boasting about statistical figures may respond to political expediency, but the real foundations of economic strength lie in the following:
(a) productivity of production;
(b) innovation;
(c) the condition of the consumer market;
(d) energy self-sufficiency;
(e) finance; and
(f) fiscal policy.
It is precisely through the objective measurement of these parameters, and not merely through a “large” or “increased” GDP expressed in numbers, that a country’s realistic ability to overcome, or at least postpone over time, an economic, and not only economic, crisis can be assessed.
It should also be taken into account that covering up the vulnerability of the economy through fiscal stimulation, the so-called mobilization of revenues (including increasing taxes, fees, or fines), has only a temporary effect. The problem does not disappear; by being postponed in time, it only becomes more acute.
Clearly, a full description of the policies required for an economic breakthrough, which is the main determinant of our country’s leap from the third tier to the first, goes beyond the scope of this article.
However, I will outline from the outset several necessary preconditions for such a breakthrough, namely:
• identifying priority sectors for public and private investment, sectors capable of delivering real, leap-like development;
• modernization of production potential: a country that cannot produce at least a few categories of goods for domestic and external consumption is extremely vulnerable to economic and geo-economic shocks;
• maximizing, as far as possible, the reduction of dependence on imports, at least in terms of basic essential products needed during crisis periods;
• increasing the competitiveness of Georgian companies, at a minimum at the regional level, with priority given to companies considered so-called “national champions” (for entry and establishment in external markets). For this purpose, I even consider it appropriate to subsidize them with a fixed annual percentage of GDP;
• transforming into a technologically advanced country: in the modern world, modern technology is equivalent to making a claim on the future;
• direct or indirect targeted subsidies, whether in the form of cheap credit, tax incentives, or other instruments.
When discussing an economically self-sufficient policy for Georgia, which is a prerequisite for economic security, one of the state’s functions is to support the creation of so-called “deep infrastructure” (not to be confused with the notoriously familiar “deep state”!). Global practice shows that “deep infrastructure” carries significant weight in competition among both global and regional centers. Clearly, for our country’s competitiveness and for moving from the category of a developing country to that of a developed one, forming a Georgian version of deep infrastructure is a priority.
In simple terms, such infrastructure consists of two main and supporting components:
• one is a complex of physically existing, interconnected service structures (the base needed for innovation, a powerful energy system, a digital network, and others); and
• the other is appropriate professional knowledge related to the management of business and operational processes, the purpose of which can be simply formulated as:
– knowing how to do things; and
– knowing how to do them better than they are done.
Alongside the “statism” approach mentioned in the previous article, which concerns the positioning of the state in economic processes and the correct balance between the state and the market, it is also necessary to say what the state should not do.
From this perspective, a long list could be made, but the most important point is that artificial privileges must not be created for state-owned companies or for businesses connected or closely associated, in one form or another, with political figures. In addition to undermining healthy competition, this approach will work against the interests of these companies themselves, since it:
(a) reduces their efficiency;
(b) leads to illusory, supposedly “business successes” based on transactions rather than real performance;
(c) suppresses innovation and entrepreneurial spirit within them;
(d) turns them into insolvent entities in the not-so-distant future.
It is also essential to note that a well-functioning, qualified, and goal-oriented economic system fosters increased optimism in business circles, which directly affects both the present state of the economy and future prospects.
At the same time, and this is extremely important, a stable middle class will be formed as a result of correct economic policy, which is one of the guarantees of stability of processes not only in the economy but also in politics.
In relevant circles, the phenomenon of the so-called “Asian Tigers” is well known, when South Korea, Singapore, Hong Kong, and Taiwan achieved an economic miracle through rapid development.
With the appropriate political will, societal consolidation, and maximum concentration on competence, why should it be impossible for us, citizens of Georgia, to set such a leap as our own ambition?
Analysis by Victor Kipiani, Geocase Chairman
