“Georgians to the Rescue in Ukraine” “Georgians play key roles in pushing Ukraine’s reforms” “Ukraine’s New Cabinet Lineup Offers Broad Competence for Reforms” – these are just a few of the headlines telling us that Georgia’s post-revolutionary reformers have come to Ukraine to help out with reforms and that commentators are very optimistic about the fact.
Transnational policy transfer has taken quite a unique form in the case of Ukraine. Foreign nationals were invited to join Ukraine’s new cabinet, were granted citizenship and appointed as advisers, ministers and deputy ministers. Alongside the US-born finance minister and Lithuanian economics minister, former Georgian officials (including ex-president Saakashvili) were appointed as health minister, first deputy interior minister, deputy justice minister, and deputy prosecutor general. In addition, at least eight Georgians are working as experts for the Ukrainian government. The hope is that Georgian experts and politicians will replicate Georgian success in reducing corruption and establishing the rule of law in Ukraine. Whether it is reasonable or justifiable to appoint persons who became citizens of a country hours before their appointment as ministers is one question. Yet another question is, what has made Georgia a role model and are Georgian reforms worth repeating?
Anti-corruption reforms responsible for deepening social misery
I shall revisit Georgia’s anti-corruption reforms. While these reforms are being exported to other countries, it is important to ask what they have achieved in the case of Georgia. In what follows, I will illustrate that while improvements in institutional quality were positively reflected in economic performance, poverty and inequality have only increased since the Rose Revolution. I argue that, not only did improvements in institutional quality fail to result in decreased poverty and inequality, but anti-corruption reforms are responsible for deepening social misery. By focusing on institutional quality, the anti-corruption reforms side-lined discussions over institutional designs. Anti-corruption discourse has turned into a tool to justify deregulation, privatisation, state downsizing and other reforms that would face more public resistance if not legitimised by the need to curb corruption. I suggest that the promise of replicating Georgia’s reforms in Ukraine needs to be approached with more caution, and the controversial outcomes of those reforms need to be attended to if Ukraine and other interested countries are to avoid some of the grave mistakes made in Georgian case.
Georgia is often portrayed as a role model because the country has successfully mimicked the dominant developmental formula linking an improved quality of government to a marketised economy. Even if an incredible amount of resources are spent on anti-corruption reforms, the cases of success are scarce. Georgia proves to be a pleasant exception to this rule and has been praised by international observers, most vigorously by the World Bank, for outstanding achievements in reducing corruption and increasing state enforcement capacity. Such positive appraisals of anti-corruption reforms in Georgia hold some water. By all available accounts daily corruption has decreased since the Rose Revolution (Figure 1) and related indicators, such as government effectiveness, regulatory quality and the rule of law have also improved, especially relative to the rest of the post-Soviet states (Figure 2). Exactly because of its outstanding success in replicating the prescriptions of the currently dominant developmental consensus on the importance of ‘impartial,’ ‘transparent,’ and ‘quality’ institutions, Georgia also is the best example to illustrate just how far this consensus fails nations in the periphery.
Decreases in corruption and a general improvement of institutional quality can arguably be seen as a desirable outcome in itself. However, institutional quality is important as far as it affects various developmental outcomes. According to the prevailing academic and policy consensus on the ‘primacy of institutions’, improvements in institutional quality and design should facilitate economic growth, improve citizens’ well-being and alleviate poverty. From this perspective, (exemplified by new-institutionalist economics in the academic sphere, and by the post-Washington consensus in the policy sphere) markets fail to bring prosperity if and when there are no market-supporting institutions in place. In a similar vein, markets only fail the poor if corrupt governments fail to provide the poor with good access to markets. If states get institutions ‘right’, the market economy will bring more prosperity on both macro- and individual levels.
Based on World Bank Governance Indicators 2010
Georgia is indeed one of the best cases to test the validity of these claims. Logically, Georgia’s acclaimed reforms should have promoted economic growth while also reducing poverty and improving citizens’ wellbeing. In terms of growth statistics, the reforms seem to have to paid off. Average GDP growth throughout 2003-2010 was at 6.6 %, while the average GDP growth for Central Asian and East European Countries was about 5.1%. FDI started flowing in and relative macroeconomic stability was achieved.
Improvement in state capacity fail to translate into reduction of poverty
However, improvement in state capacity was never translated into improvement in well-being for the majority of Georgia’s citizens. Instead inequality as well as relative and absolute poverty rates started soaring. Paradoxically, the World Bank, while otherwise consistently praising Georgia’s reforms, also provides data on widespread poverty in the country. While I understand that it may not be the most accurate source, this data has the advantage of allowing for a comparison of poverty levels with the other countries of the region. According to the latest (2012) estimations of the World Bank, $1.25 and $2 a day poverty is higher in Georgia than in any other Eastern European or Central Asian states (Figure 3). This is particularly troubling since over the second decade of transformation, poverty rates have been decreasing in most of the post-Soviet states. Georgia is the only country where the poverty rates increase over time. In addition, According to the World Food Program (Figure 5), Georgia remains the only country in the region where over 25 percent of the population is undernourished by 2010-2012, and compared to the end of the 1990s there is little or no progress. Unsurprisingly, the inequality level is also the highest by comparison to the neighbouring countries, with the GINI coefficient around 42%.
Poverty Headcount Ratio at 2$ a day – Georgia in Comparative Perspective
Authors own calculations based on World Bank data, 2012
The paradox here is that not only did the corruption decrease and improvement in other variables measuring institutional performance not lead to decreased poverty and inequality, but that most of the regions’ more corrupt states fare much better than Georgia. Clearly, one way to interpret this paradox is to say that corruption decrease is just not enough. When the link between corruption and social protection is established, there should be a reason to assume that some social protection exists in the first place. In the Georgian case this assumption clearly does not hold. The post-revolutionary government never envisioned becoming a welfare state, so the money and resources were no longer lost on the way to being delivered to the beneficiaries, but instead no money and resources were provided in the first place. It is fair (but of course, not new) to say that a corruption decrease will not work if the state does not provide any welfare. However, this logic does not explain the second part of the paradox – why would the less corrupt Georgian state be so incapable of reducing poverty while other countries of similar size in the region fare significantly better (given that economic indicators are similar and these countries do not provide very generous social protection either).
Anti-corruption reforms favour a very specific institutional design
As Costi Rogozanu reminds us in the article published on the LeftEast platform a few months ago, it is not enough to ask what anti-corruption reforms fail to accomplish. Instead we need to ask what those reforms successfully achieve. As he argues, anti-corruption discourse is yet another name for economic abuse, austerity and ‘shameless’ neoliberal policies in Eastern Europe and elsewhere. Anti-corruption reforms don’t just fail to reduce poverty but they are responsible for deepening poverty and inequalities. While it seems obvious that less corruption and better quality governance should be ‘good things’, in practice this imperative is hurting the societies subjected to it. The main reason for this, to my best understanding, is that ‘anti-corruption’ and ‘good-governance’ drives depoliticize issues related to institutional and policy design by prioritising institutional quality. It obscures any debate on the designs of policies and institutions by making bad institutional quality a central explanatory variable for the failure of different policies. It makes it impossible to criticize the direction of reforms, or any and every political decision, by focusing on problems of implementation. As corruption, clientelism, and lack of transparency can be identified in all polities, they become the unfalsifiable explanation for every misfortune and failure. Even if bad institutional quality seems like a structural problem, in practice the blame is identified on an individual level. Rent-seeking and greedy individual politicians and bureaucrats on the political left and right are the ones to be blamed, not the direction and content of the policies they pursue. Another, and perhaps a bigger problem, is that anti-corruption reforms implicitly (if not explicitly) favour a very specific institutional design. Unsurprisingly, the institutional design that is more compatible with quality institutions is the same old deregulation, privatization, macroeconomic stability and other good things we’ve inherited from the original neoliberal agenda of the 1980s and 1990s. In other words, by focusing on institutional quality a ‘refreshed’ neoliberal agenda has made itself immune to criticism; capable of reproducing itself by finding an unfalsifiable explanation for failures while avoiding responsibility and redirecting the guilt for what goes wrong.
In Georgia, perhaps more than anywhere, the post-revolutionary government used the anti-corruption discourse to get rid of social responsibilities, outsource and privatize a large portion of public services, and remove entire state departments, services and institutions. All the social, economic, and political problems of pre-revolution Georgia were framed as problems related to the prevalence of corruption and informality. It was assumed that as there was nothing left to lose, the state could get rid of dysfunctional institutions and regulations. The scale of deregulation was, to my knowledge, unprecedented. First, the number of regulations, permits and licenses were reduced by 84% percent. Second, the procedures for granting licenses were simplified and timeframes were reduced. Last, and most important, a number of regulatory agencies and institutions were abolished; among them: the anti-monopoly service, structures and institutions controlling food safety, technical regulation, standardization and certification, the institutions and agencies (the state employment agency, the labour fund, labour inspection) that were responsible for implementing labour policies and/or monitoring working conditions of the employees. Tariffs and non-tariff barriers were eliminated, making Georgia into a country with the fifth lowest average tariff in the world and the lowest in the region. The government removed most of the restrictions concerning property transfer to offshore or third country investors. Even the objects that were previously defined as ‘strategic’, such as energy distribution lines, water utilities and seaports as well as commonly protected public assets were open for sale. From 2004 to 2010 the state privatised up to 4000 assets worth nearly 1.4 billion USD.
Authors own calculations based on World Bank data (1990-2010)
The privatization of healthcare illustrates at best the depth as well as detrimental consequences of this privatization drive. By 2007 the government announced a plan for the privatization of healthcare facilities and services. A largely state-funded system was transformed into an entirely insurance-based system overnight. Valuable healthcare facilities were sold for marginal value and investors were only expected to keep them functioning as healthcare facilities for 7 years. The government retained minimal regulatory power and didn’t even specify terms of renovation and refurbishment. Soon, it became clear that the investors were delaying renovations and perhaps intended to alter the function of the facilities in the future. Most important, the privatization grossly diminished citizens’ access to healthcare. State funded insurance policies were given to the poorest based on a means-testing system, but the system did not cover one of the central healthcare components (drug expenses), and often missed out on the most vulnerable (primarily rural) population. An estimated 40% of the citizens who didn’t qualify as poor but also couldn’t afford private insurance was left without any health insurance. This led to the situation where “In almost 60 % of all households in 2008-9 at least one person needed medical services or medicines which the household could not afford to purchase. Less than a quarter of the population in Georgia is covered by any kind of health insurance and this figure drops to just less than a fifth in urban areas. Free health insurance is concentrated in the poorest fifth of households, but even in these households only just over a fifth of the population is covered”[1].
The list of post-revolutionary ‘achievements’ is much larger than described here. But, this discussion should be enough to give an approximate answer to the original question of this article. Georgian reforms are not worth replicating in Ukraine or elsewhere, at least as long as concerns with institutional quality overshadow the question of institutional design and cover up the brutality of the neoliberal content of these reforms. This is why it’s hard to subscribe with the celebratory tone of commentators on the export of Georgia’s reforms and reformers to Ukraine. This is not the first, nor is it unfortunately the last case, when (to say the least) controversial reforms are imposed on societies without carefully considering their implications. Still, I would like to remind readers that there is much more to Georgia’s experience than improved international rankings, and some of the lessons we have learnt were very costly.
[1] UNICEF Georgia. (2010). How Do Georgian Children And Their Families Cope With The Impact of Financial Crisis (Report on Analysis of the Georgia Welfare Monitoring Survey Data, 2009). University of York: UNICEF Georgia.p.4