Research Question

• After the global crisis of socialism, comparative analysis focused more on the differences within
capitalism. Today, comparative studies actively study the capitalist regimes of post-socialist countries.
However, small Caucasian post-socialist countries such as Georgia, Armenia, and Azerbaijan are
experiencing severe shortages of academic interest. In the comparative analysis devoted to post-socialist
countries, they are generally regarded as various types of hybrid capitalism (Lane & Myant, 2007,
Chapter 9) or are not mentioned at all.

• The paper (In future) tries to answer the following question: what type of capitalism was formed in
Georgia as a result of 30 years of transformation. What place does it occupy in the Polanyian typologies
formulated by Bohle and Greskovits? And can we characterize its economic dynamics as "dependent
development"?
 Catching Up The Past
60,000,000,000 30%

25%

20%
50,000,000,000 15%14%
13% 15%
11% 12% 11%
10%10%
6% 5%
8%
7% 7% 7% 7% 6%6% 6% 7% 8% 7% 10%
6% 5% 6% 6% 5% 5%5% 5%
4% 4% 4% 4% 3% 5% 4% 5% 4% 3% 4% 4% 3%3% 5%
40,000,000,000 1% 2% 1% 0%
0%
-3% -5%
-7% -7%
30,000,000,000 -9% -9% -10%

-15%
-15%
-20%
20,000,000,000 -22%
-25%

-30%
-30%
-35%
10,000,000,000
-40%

-45%
-45%
- -50%

GDP per capita growth (annual %) GDP (constant LCU)

6,000,000 GDP per capita (constant 12,000
• In 2019, Georgia caught up with the
GDP per capita (constant
LCU), 1985, 10,675 LCU), 2019, 10,832 Soviet level in GDP per capita.
Georgia lost 34 years - you have to run
5,000,000 10,000 very fast to stay where you are.

but –
4,000,000 8,000

- The population decreased

3,000,000 6,000 (emigration and excessive deaths are a
POP

post-Soviet way of increasing GDP) +

remittances = 11.2% of GDP 2014 -
2,000,000 4,000 2018 )
Inequality has increased radically.
- The structure of the economy has
1,000,000 2,000
degraded (premature
deindustrialization)
pop GDP per capita (constant LCU)
0 -
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
• In 1989, 29% of the population had less than one hundred rubles (only 13% of them had 75 rubles). By 1992,
86 percent were below the poverty line (the poverty line is calculated based on the minimum consumer
basket, which was equal to 100 rubles in 1989).
• sd
 The top 10% to bottom 50% average income gap

19

Geo.
17

• The top 10% to bottom 50%

15 average income gap is the ratio
RUS.
ROU.
between the income shares of
the top 10% and the bottom 50%.
BGR.
10/50 (means)

13

11
It measures the average income
difference between the poorest
Armenia. MNE.
HRV. LVA.
AZEერ . LTU.

9
MDA.
BIH.
Serb.
POL.
EST.
half and the highest earners
ALB.
HUN.
within a population. The higher
7
UKR. BLR.
the ratio, the higher the
inequality.
Slovenia.

CZE.
SVK.
5
• Georgia is chamption between
3 other post socialist countries.
$10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000

GDP per capita, PPP (current international $) 2018

 Theoretical Background

Dependency Diversity of Capitalism - Bohle & Greskovits

o “the dependent economy is defined not by its stagnation, nor by a
complete subordination to another economy. It is one in which
accumulation and expansion could not find “its essential dynamic
component inside the system (e.g., strong national innovation
system, financial resources, strong national firms)” (Cardoso &
Faletto, 1979),
o “the rate and direction of accumulation are externally conditioned”
(Evans, 1979, p. 27)”.
o The state and national business (along with other class coalitions)
have an agency, because "dependency" is not an absolute but a
"relative" condition (Myant, 2018, p. 1).
 In the theoretical framework of the VOC, Nölke and Vliegenthart
introduced the concept of “DME". DME rely on markets or strategic
coordination but on transnational corporations to supply the
necessary inputs in the realms of finance, labour relations, training
and technology.
 For this reason, the comparative advantage of Visegrad countries
are constantly being threatened by countries located further to
the east and will continue to remain limited to segments of their
economies. Innovation always comes from outside, embodied in
products and processes designed elsewhere. Production in DME’s
is “based always on established methods and technologies so that
these countries can never lead with the newest (Myant,2018).
Bohle & Greskovits agree with Nölke and Vliegenthart on the
relevance of Dependency (although they use the different terms -
semi-peripheral and semi-core integration), but criticize them for
neglecting the diversity within ”dependencies".
Postsocialist capitalisms can be differentiated by the changing
relative weight of the ideas and institutional implications of
neoliberalism, welfare capitalism, and democratic corporatism.
• Neoliberalism prioritizes the creation of efficient markets,
• welfare capitalism compensates for the costs of radical socio-
economic change
• Accordingly, democratic corporatism fore grounds the three
key institutional dimensions of political coordination, as it
takes into account the influence of both the electorate and
organized business and labor over the policy choices of a
capable public authority. (Bohle & Greskovits, 2012, p. 11).
 Extending hexagonal Diamond
Capitalism “As its Capitalism“as it
Best” worst” Regime outcomes are determined by -
1. initial choices of elites (but also societal reactions)
2. By movements and counter movements (in Polanyian Sense)
3. And by Transnational and international factors and actors (international
embeddedness ( PC economies became exposed to global pressures)
Government accountability State Capture

 neoliberal regime consist of a combination of market radicalism with meager

Corporatism Interest Rent-Seeking compensation for transformation costs, together with severe limitation of
citizens’ and organized social groups’ influence in democratic politics and
mediation
policymaking. (Baltics)
Welfare state Protection pauperization  embedded neoliberalism is characterized by a permanent search for
compromises between market transformation and social cohesion in more
inclusive but not always efficient systems of democratic government. (Visegrad)
Market Efficiency Commodification
 Neo-corporatism has combined the least radical strategy of marketization with
the region’s most generous eff orts to compensate transformation’s losers.
Democracy Representation Un-governability Moreover, uniquely in the postsocialist world, this country exhibits many
features of a democratic corporatist polity, where negotiated multilevel
relationships among business, labor, and the state orient political rivals toward
Macroeconomic Stability straightjacket on compromise solutions (slovania)
Coordination development
 Variables
• Government - The Worldwide Governance Indicators (WGI), which measure the results of different countries with the
following indicators: Government Effectiveness; Regulatory Quality; Rule of Law; Control of Corruption. The indices are
measured on a scale of -2.5 - 2.5. we rescaled these scores for our model.
• For Corporatism, Bohle and Greskovits use the “Institutional Characteristics of Trade Unions, Wage Setting, State
Intervention and Social Pacts” (ICTWSS database - collective bargaining coverage and extension of collective agreements to
nonunionized firms) , which does not contain data from Georgia and other post-socialist countries (neither old nor new
data). Because of this I had to introduce a proxy measure - Union Density Rate, Coverege of wage bargaining and Freedom
of Wage Setting, (Global Competitiveness Index 4.0).
• Welfare state - As far as the welfare state considers both the benefits and the redistribution, I considered it necessary to
expand this category. The first component is Public social protection expenditure (excluding health) as the percentage of
GDP, the second element is the ratio of the state to current and personal health care expenditures, and the third component
is the redistributive function of the state (Ratio of pre fiscal Gini to disposable income Gini) See: World Social Protection
Report 2020–2022
• Market - 9 indicators of the EBRD transition Index
• Democracy - Polity Index .
• Macroeconomic coordination -3rd pillar of the global competitve index: "Macroeconomic environment„

In each component, the country score is measured in relation to the result of the country with the best score,
and the average score in the category is finally determined. Finally, hexagons are obtained by dividing these
data into categories.
 Agglomerative hierarchical clustering (AHC) For Selected countries
Silhouette scores

ARM
0.290
MDA
Dendrogram 0.262
RUS
9000
0.226
ALB
0.148
UKR
0.110
SVK
8000
0.442
POL
0.381

Observations
CZE
0.320
HUN
7000 0.203
GEO
0.063
LTU
0.616
EST
6000 0.554
LVA
0.472
ROU
0.371
HRV
0.365
5000
SVN
0.000
Dissimilarity

C1
C3 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7
C5
Score
4000 C4
C2
Cluster 1 Cluster 2 Cluster 3 Cluster 4 Cluster 5

3000 • As a result of hierarchical cluster analysis, it was determined that Georgian capitalism belongs
to the type of "embedded neoliberalism". However, it should be noted that its Silhouette score
is quite low (also for Romania), which indicates a high chance of accidentally belonging to this
2000 cluster. According to the silhouette score, the most homogeneous cluster consists of the Baltic
states.
• The case of Georgia can be characterized as a transitional case between pure neoliberal and
1000
embedded neoliberal models. But one thing is clear, it differs sharply from the post-Soviet
countries in its region.
0 • Slovenia, which has become an outsider, has confirmed its exceptional neo-corporate
ALBUKRARMRUSMDAESTLTULVASVNROUHRVGEOCZEPOLHUNSVK character, as already indicated in the work of Bohle and Greskovits, as it is the only
representative of its kind. Non of the country is converging towards neo corporatists model.
hexagonal “diamond”

Source: Authors calculations.

The period of data varies depending on availability, with
most data from 2019 and some from 2015 onwards.
Some Resultes

• sssssssss
 Some interpretations
 Georgia is catching up to Embedded and pure neoliberal countries in terms of market macroeconomic coordination democracy but lags behind
them in terms of welfare state & corporatism. This result indicates weak counter-movements (but also poses significant questions about the
methodology of measurement of democracy).
 In Terms of economic freedom it already ahead of most post socialist countries even European ones.
 Pauperization is (partly) compensated by remittances, averaging 11.2% of GDP between 2014 and 2018. Avarage unemployment rate 18%
(2016-2021). (no unemployment compensation or active employment policy).
 Corporatist institutions are weak on the one hand because of state policies and on the other hand because of weak trade unions. The tripartite
commission has a formal character. Collective agreements are minimal.
 Macroeconomic policy is based on strict inflation control, while fiscal policy is built upon the conception of a “minimal state”. Progressive taxes
are constitutionally prohibited, profit tax is minimal, and indirect taxes make up 60% of the budget.

Data from Economic Freedom of the World: 2022 Annual Report. Copyright 2022, The Fraser Institute..
 Coup and the Rise Of Paramilitaries

● Alongside the collapse of state structures, the monopoly of using violence

The failed attack on shifts to private actors, and a confrontation for power begins between dissident
political elites, fractions of nomenclature, and armed informal group coalitions
Shevardnadze and the purge (Driscoll, 2015). All this grows into a civil war by August 1991. The unification of
of paramilitaries. the potential capitalist class with the political opposition (mainly from the
liberation movement) was essential in overthrowing the government, which
delayed the "natural course of history“. President Zviad Gamsakhurdia was
removed from power.
● The stability of power in the ruling class was secured at the expense of
weakening state institutions. Paramilitary organizations do not threaten the
legitimacy of the political class (After The coup), and in exchange, state
structures do not interfere in the economy, resulting in a failed state.
Shevardnadze's international authority ensures foreign aid and investment
(mainly infrastructure) inflow, increasing the "cake" size to be shared.

● According to a survey conducted in the waning months of the Shevardnadze

administration, only 32 percent of Tbilisi residents said they would turn to the
police after being victims of a violent crime.

● The weakening of the state's legitimacy strengthens criminal authorities' role in

society (as judges and guards). On the other hand, it increases the church's
power (identity and hope).

Source: Reproduced from Driscoll, J. (2015, July). Warlords and Coalition Politics in Post-Soviet States.
From Non-Regime to neoliberal state
Reforming the system of examinations for
admission to universities, which had been
infamous for corruption.

As a result of the fight against corruption in

the energy industry, starting in the winter of
2006–7 electricity began to be supplied
throughout the whole country.

Police reform and breaking power of

criminal authorities..
high economic growth.
inflow of FDI (10% of GDP per year)
At the same time, law enforcement agencies
were gaining strength, eventually leading to
an imbalance between welfare and law
enforcement functions of the state. This
contributes to the formation of a "Police
State" or Neoliberal authoritarianism.
 1 Wave of Reformation (equilibrium)
st

• The real institutional reforms of economic liberalization begin in 1992, under the leadership of
Eduard Shevardnadze. During 1992-93, in the period of hyper-inflation, the government
privatizes 300 factories in the pre-inflation prices that allows selling these assets for very cheap
(Asatiani, 2009, p. 97).

• Already in 1996, the second big wave of privatization is being launched. During this time, large-
scale privatization occurred in the sectors of banking, energy, water-supply, industry, health,
trade and service (Asatiani, 2009, p. 101) and mass voucherization scheme is introduced as a
result of which, foreign investors acquire 20% of all vouchers, and 1% of the entire population
gets 70% of all the available vouchers (Archvadze, 2002, p. 32).

• At the same time, by 1996, 77% of all the agriculture is being privatized (Radnitz, 2010). To make
sense of the population’s ability to participate in privatization processes wage figures are also
remarkable: the average income in 1994 is equivalent of 1.5 U.S. dollar, and pension consists of
equivalent of 10 cent per month (Asatiani, 2009).
 2nd wave of reforms – Prerequisites of Change
• Already in 2000, significant political changes begin. For economic elites, it
becomes evident that the existing mode of capital accumulation has its
limitations mainly due to the following reasons: gradually, the possibility of
commercially utilizing economic legacy of the Soviet Union is expiring;
• he state budget comprises 13% of the total GDP (International Monetary
Fund, 2004) with which state is unable to provide private businesses with
adequate infrastructure. (For instance, according to the report of 2002, due
to the scarce/deficit supply of electricity, business loses on average 110
days in a year (Taylor, 2004). In various surveys, business repeatedly names
non-official interference by the state and corrupt bureaucracy as key
obstacles (Shelley et al., 2007).
 From Class in itself to class for himself
• Shevardnadze-led government, by the end of their rule, due to inability of fulfilling its terms of
agreements, loses trust of external investors and international financial institutions. For that reason,
the biggest American corporation leaves the country and the International Monetary Fund rejects
credit approval to the government (Radnitz, 2010). Instead of taxes, bribes are collected, and doing
and expanding business activities is related with corrupt agreements with the government and profit-
distribution with “thieves-in-laws” (Molchanov et al., 2000).
• In this period, economic elites split into two parts. One part is supporting the Shevardnadze
government and the status quo, and the other part is in favor of change and financially backs the
young team from the Shevardnadze party, which already departs from the ruling “Citizens Union.”.
First such rupture of local capital from Shevardnadze government occurs in 2001, when the
previously loyal to government businessmen establish the new political party - “the New Rights
Party.” Soon after that, two young leaders Mikheil Saakashvili and Zurab Zhvania also depart from the
ruling party and start formation of the new political organizations. For the elections of 2003, the local
businesses are already mobilizing finances in support of Saakashvili’s election campaign (Radnitz,
2010). It remains a topic of future research to explain specific constitutions of these economic elites
and its relation to their political preferences, however, the main reason of dissatisfaction was the fact
that the government failed to provide favorable infrastructure, protective institutions and security for
the development of large businesses.
• 2000s- For economic elites, it becomes evident that the existing mode of capital accumulation reached it Limits: gradually, the
possibility of commercially utilizing economic legacy of the Soviet Union is expiring;

• state budget comprises 13% of the total GDP (International Monetary Fund, 2004) - with which state is unable to provide private
businesses with adequate infrastructure.

• For instance, according to the report of 2002, due to the scarce/deficit supply of electricity, business loses on average 110 days in a
year (Taylor, 2004). In various surveys, business repeatedly names non-official interference by the state and corrupt bureaucracy as
key obstacles (Shelley et al., 2007).

• In 2002, the IMF suspended its program in Georgia. Instead of taxes, bribes are collected, and doing and expanding business activities
is related with corrupt agreements with the government and profit distribution with 'thieves in law' (Molchanov et al., 2000).

• state was often unable to ensure timely pay-out of meagre old-age pensions in the amount of 14 Georgian Lari (GEL) or $7 a month,
or salaries to public servants. provision of the electricity even in the capital, Tbilisi, was limited to several hours a day (UNDP, 2008).
In brief, the term ‘failed state’ well describes Georgia's situation at the beginning of 2004.

• By the end of 2003, the total debt to the public accumulated during the budget crisis, in the form of unpaid wages in the public sector
and pensions, reached $120 million. Of this, about $70 million was owed for pensions (while the average monthly pension was less
than $7). Georgia had a 52 percent poverty level.
 “More Catholics than the Pope”

Massive corruption during Shevardnadze's rule led to

the total de-legitimization and collapse of public
institutions, which provided fertile ground for
neoliberal policies. That is why the attack on welfare
institutions has hardly led to "countermovement." In
other words, people could not defend what they had
never had.
• Under anti-corruption policies, regulatory welfare
institutions such as the labor inspectorate, the anti-
monopoly service, and food safety regulating bodies
were abolished.
• On the other hand, the privatization and
commodification of public services were reinforced.
• Labor Code Became most Liberal in the world (Brutal
Repression of labor)
At the same time, law enforcement agencies were
gaining strength, eventually leading to an imbalance
between welfare and law enforcement functions of the
state. This contributed to the formation of a "Police
State" or Neoliberal authoritarianism.
 Statistics of court verdicts.
By 2011, Georgia was in the first place in Europe with
865.73 probationers per 100 thousand inhabitants .
Eventually, brutality and torture in prisons became the Terminated Case Partially not guilty
approximate (though not foundational) reason for the
verdict of not guilty Guilty
end of Saakashvili's rule.

Graph: Numbers Of Prisoners

In parallel with total deregulation, informal
intervention in the economy grew. Redistributing
private assets to a new elite (not in the hands of the
state) became permanent. The power of the secret
police grew and its control was established in all
institutions. Opposition media were closed (media
freedom ratings fell below Shevardnadze's period).

In 2012, the permanent nature of the informal

distribution of resources was followed by the
establishment of an opposition party by Bidzina
Ivanishvili (a former financier and supporter of
Saakashvili, a billionaire enriched in Russia).

The uneven nature of economic growth and

repressive policies (at a low level) turned the masses
into opposition, and Ivanishvili easily managed to
unite the discontent.
 Neoliberal Constitution
in 2009, President Saakashvili introduced “the Economic Liberty Act”. “The state guarantees economic
rights and freedoms that are to become the basis of the development of society, the welfare of the
people and the long-term, stable growth of the economy. Freedom is a basic principle of economic
policy that is expressed in reduced government, responsible macroeconomic policy and low taxes”.

1. The state expenses should not exceed 30% of the GDP

2. The Parliament has no right to increase direct (only regressive ones) taxes.
3. That increase in taxes is possible only by holding a referendum (however, progressive taxation
cannot become a subject of a referendum; unlike other issues, a referendum on taxation policy can
only be initiated by the government and not by the people or Parliament).
4. That the budget deficit has to be limited at 3% of the GDP, and public debt at 60% (Organc Law of
Georgia on Economic Freedom of 2011, 2011).
As a result of the paternalistic policies of "Georgian Dream"
(despite relatively low growth) poverty indicators have
decreased.
 2018 Global Competitive Index

Production
Capabilities
Ranking (137
countries)
Investment
Environment
Ranking (137
countries)
Productive Capabilities
FDI and technology transfer 94 Property rights 46
lags behind / institutional
Availability of latest 111 irregular payments and bribes 30
convergence
technologies

Affordability of financial 81 Total tax rate % profits 8 The relationship between foreign direct
services
investment and technology transfer is
Firm-level technology 108 Trade tariffs % duty 4
absorption
weak.
Local supplier quantity 129 Burden of customs procedures 14
Financial services are not available for
Local supplier quality 115 Business impact of rules on 29 firms.
FDI

Production process 88 Hiring and firing practices 28

sophistication
Company spending on R&D
Capacity for innovation
Quality of scientific research
institutions
Local innovative and scientific
Strength of investor protection
development is weak.
122 7
99 Burden of government 9
regulation
Private sector spending on research and
Effect of taxation on
development is minimal.
127 14
incentives to invest

Availability of scientists and Prevalence of non-tariff

Highly skilled workforce is in short supply
125 25
engineers barriers due to lack of demand from the
 Peripheral
integration/Dependent
Development

• FDI and foreign-owned banks are the

Inward And Outward FDI stock balance main sources of financing for Visegrad
and Baltic countries, as well as for
Source: UNCTAD, 2022
Georgia.
• But in Georgia most of credits is
allocated to households (no public or
development banks)
• A common feature is that the GDP of
these economies grows faster than
their national incomes. But large profit
outflow is accepted because of jobs.
 Dependent Development with different
Change in MVA per capita ( 1991 & 2018).
UNIDO database 2022 outcomes

• Some post-socialist dependent economies

experienced FDI-based reindustrialization and
some de-industrialization.
• In Georgia most of the FDI is goes to Banking,
gas transit, Retail, construction, energy and Real
estate sector. While…
Change medium and high VA as % of total
• The Visegrad countries experienced significant
( 1991 & 2018). UNIDO database 2022 economic development using comparative
advantages in the assembly and production of
relatively complex and durable consumer goods.
"These comparative advantages are based on
institutional complementarities between skilled,
but cheap, labour; the transfer of technological
innovations within transnational enterprises;
and the provision of capital through foreign
direct investment"(Nölke & Vliegenthart, 2009).
 Peripheral
integration/Dependent
Development
• The international integration of Georgia's
economy (while it was deindustrializing)
and the internal neoliberal political
consensus have encouraged its
dependent development.
• On the one hand, the reforms carried out
in the initial stages of transformation,
then during institutional consolidation
(Rose revolution), and on the other hand,
the “absence” of popular counter-
movements, have shaped Georgia into a
neoliberal type of capitalism (which is
hardly embedded).
 Limitations and further perspectives

• In the paper, the graphs are insufficiently interpreted and the connection between Polanyi typologies and dependent
development is not highlighted.
• The main factors that led to the formation of the neoliberal regime are poorly interpreted. Especially in terms of the “Double
movement" - the paper describes only (partially) government policy.
• Counter-movements against market forces in Georgia and the Caucasus region are mostly not expressed in political language,
but in passive cultural resistance and a kind of "sublimated" protest in the public space. Therefore, disembeddedness and re-
embeddedness of the economy are an additional subject of research.
• The Georgian variant of dependent development certainly requires additional statistical and field work. Without it, economic
backwardness can be explained not by integration, but by the lack of integration.