Georgian International Group slams Hannan for economic “fantasy”

By Alex Smith / @alexsmith1982

In blogpost yesterday entitled “Libertarianism has made Georgia rich and free“, Tory MEP Daniel Hannan made some wild and unsubstantiated claims about the perceived “success” of Georgia’s economy.

The Georgian International Media Centre has done a good job of fisking Hannan’s original claims, in bold, with the reality of the Georgian situation beneath each:

Most governments responded to the credit crunch by borrowing more, taxing more, regulating more and owning more. Not that of Georgia.

In fact Georgia has hugely increased its borrowing. The IMF estimates that Georgia went from borrowing around 4% of GDP in 2007 to borrowing 10% of GDP in 2009 and borrowing will fall to about 7.5% of GDP in 2010 (NB borrowing 4% of GDP also means an increase in debt – what happened is that the rate of increase of borrowing increased). It doesn’t own any more (as a post-Soviet state large parts of the economy were still in state hands 18 years after the break up of the Soviet Union) put had to put its privatisation programme on hold. But in Tbilisi – where the mayor is facing a tough re-election battle an unpopular privatisation was reversed and assets were returned to the state.

The aristocrats of the Caucasus recently adopted something called the Liberty Act, which limits their deficit to 3 per cent of GDP and their public debt to 60 per cent.

Aristocrats? In fact the other two Caucasus states of Armenia and Azerbaijan are richer. The Economic Liberty Act has not yet been adopted, indeed the government seem to be delaying implementation because of problems with it (such as the fact that it would rule out the government’s new anti-monopoly legislation: itself a retreat from a previous extreme libertarian policy adopted by Saakashvili). It is also worth noting that the limits mentioned by Mr Hannan do not apply during a recession.

The proportion of economic activity generated by the state is capped by law at 30 per cent, and the number of government licences and permits is likewise restricted. At the same time, control of public services, including healthcare and education, is shifted from state to citizen.

Georgia has the worst-funded health system in Europe and also has some of the worst health outcomes. We are not sure what Mr Hannan means by “control of public services is…shifted from state to citizen”. For instance the education minister recently issued an edict prohibiting school headteachers from speaking to the media without central government permission. The government have been struggling to find ways to get better results from health using government subsidies but have been criticised for acting in ways which discourage private investment.

Result? Georgia’s GDP has doubled despite the Russian embargo and the recent war, and the country has continued to grow through the downturn.

Georgia’s economic performance has indeed been good – though broadly inline with the rest of the Eurasian region. The country’s economy has not “continued to grow through the downturn”: that claim is obvious nonsense. The economy shrank by an estimated 4% in 2009.

Mikheil Saakashvili was in London yesterday at a seminar hosted by a truly brilliant think-tank called the Legatum Institute. He spoke with infectious enthusiasm about the way in which the application of market doctrines had transformed a failed state into a free society – despite the constant, brooding menace of Putinite revanchism.

Hannan has a strange idea of what constitutes a “free society”: Georgia has been rated as “not an elective democracy” two years in a row by Freedom House. Saakashvili’s supporters are scraping the barrel with comparisons with Putin and Russia – one of the most repressive regimes in the world in terms of freedom of expression. As for market doctrines – in Georgia the government stormed a TV station when it broadcast stories it did not like and then ensured it was handed over to government supporters and lied, so it appears, about its susbsequent sale: that is not how a free market operates.

One of President Saakashvili’s former prime ministers pointed out that Georgia had shot up all the league tables on competitiveness, property rights and lack of corruption. The only countries doing better, he observed, were former British colonies. Spotting the pattern, he had hoped to join the Commonwealth, and had raised the issue with the Foreign Office. That application, sadly, came to nothing. Perhaps we should revive the issue. I mean, if Rwanda can join, why not Georgia?

At last – one member of the Georgian government who recognises that it is Dominica and not Georgia that has gone further up Transparency International’s corruption perception index. Maybe Mr Hannan could encourage his friend to tell the president?