Modern Georgia is a libertarian utopia. In the 2000s, under the then president, Mikheil Saakashvili, and Kakha Bendukidze, an economy minister who once said that “asking the government for help is like trusting a drunk to do brain surgery”, the Caucasus country became one of the world’s most economically liberal. Between 2006 and 2008, it rose from 112th to 18th on the World Bank’s ease of doing business index. Saakashvili has long since left office, but his successors have largely continued in the same vein. Laissez-faire economics still enjoy broad public support in Georgia, says Maximilian Hess of the Foreign Policy Research Institute think tank.
Yet the coronavirus pandemic is now testing ideas dreamt up in the boardrooms of right-wing think tanks in the West and taken to their extreme in the Caucasus. Overnight, Georgia has been transformed from one of Europe’s most open states to among its most reclusive. No foreign nationals are allowed in, and the government has even insisted that lorry drivers from virus-affected countries be replaced with those from “outside the risk groups”. So far Georgia remains relatively unscathed by Covid-19, but quite how long the restrictions will last, and to what extent they will be dismantled once the crisis abates, remains unclear.
The coming drastic fall in consumer demand will prompt muscular state intervention in the economy too. A sharp drop in foreign travellers for this year’s high season will cripple Georgia’s lucrative tourism sector, already reeling from a 2019 ban on direct flights from Russia. A tax holiday, announced by the government on 13 March, will help official businesses but not people working in the vast shadow economy – activity that is neither taxed nor monitored by any form of government – which the IMF in 2018 estimated to be the largest in the world. The only way to sustain demand will be for the government to re-evaluate the maxim that “the market will take care of everything, including poverty and social inequality”, argues Yaroslava Babych, a professor of economics at Tbilisi State University. “A social safety net is an essential part of any functioning economy. If you want an economy that is resilient, if you want internal demand not to collapse in a time of crisis, the state has to support it.”
Georgia’s approach to economic reform has been to shrink the state at the first sign of dysfunction and let the market take over instead. Kakha Bendukidze infamously advised any Georgians resentful at his 2005 elimination of food safety inspections to simply boycott restaurants which gave them food poisoning. The coronavirus crisis will prove that there are some things that only the state can do. No one is a libertarian in a pandemic – not even in the Caucasus.
Read the rest of the “The state transformed” series here
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This article appears in the 25 Mar 2020 issue of the New Statesman, The crisis chancellor