Economic Revitalization

Today, the economy of Georgia, like that of most former Soviet countries, is diversifying and focusing on areas of comparative advantage in trade, tourism, services, and high-value agriculture. In the modern global economy, the economic success of Georgia and other small countries will increasingly rest on our ability to foster rapid and agile entrepreneurship.

The Soviet system taught its citizens to avoid risk and innovation. Rewards for effective performance and originality were scant, while punishment for noticeable failure was common and harsh. Georgia’s independence did not do enough to change this trend. Starting a business still required either ties to corrupt officials or a preternatural patience for navigating government forms, bribes, and petty obstruction. This resulted in too few young Georgians starting businesses and years of wasted talent.

In the last two years, we have taken many steps to change Georgia’s business culture. First, registration and regulation processes have been streamlined, ending parasitic extortion. More than 750 licenses, permits, and permissions—83 percent of the former count—have been abolished, allowing companies and professionals to conduct business without government hindrance. Second, new laws shift the burden of performance from license applicants to the licensing agencies themselves: if the agencies fail to process a request within a guaranteed time frame, the license is granted.

Third, we have implemented reforms long proven to benefit the business climate, such as reduced taxation and greater tax flexibility. A new tax code introduced last year brought income tax down to a flat rate of 12 percent, reduced the value added tax rate, and reduced the total number of taxes from 27 to 7. Next year, Georgia plans to dramatically reduce and ultimately eliminate tariffs and other trade barriers. Reforms like these are crucial not only to create better conditions for business but also to establish policy direction and momentum so that investors and politicians alike understand the government’s commitment to enabling rather than hindering market activity.

Reforming Education

The web of changes stemming from the early reforms in areas like traffic patrol set a pattern for subsequent reforms by demonstrating that changes succeed when they are comprehensive. Education reform offers another prime example of the need for comprehensive change.

Lack of accountability, entrenched corruption, and ineffective quality review mechanisms have long plagued the education system, hampering Georgia’s ability to move toward a social system based on merit rather than patronage. This was especially evident at the university level, where compulsory “tutoring” for each university’s obscure entrance examinations allowed professors-for-life to subsist on corruption. University entrance could not be won without enormous bribes totaling as much as US$15,000. Students graduated from Georgia’s public universities with expertise in conformity and little else but debt from years of bribery that ushered them into positions where they could have a turn in earning kickbacks.

Clearly, the situation required nothing less than a radical re-organization of the education system. As a first step, in 2005 the Ministry of Education and Science assembled a strategy for revamping university admissions, accreditation, and funding. The new plan introduced competitive funding for higher and secondary education institutions based on enrollment, providing a strong incentive for schools to meet rather than obstruct student needs. It also introduced a comprehensive system of national entrance examinations modeled after the SAT in the United States. Last summer 36,000 students took these exams, and the top 17,000 scorers were awarded scholarships for public or private tuition, with additional scholarships earmarked for underrepresented minorities.

The education reform program is not solely a top-down approach resting in the government’s hands. Cooperation among stakeholders and support from reforms already underway allowed the effort to be far more successful than it could have been if the government had acted alone. The government collaborated extensively with non-governmental organizations (NGOs) in developing, administering, and monitoring the new exams, with funding provided by a World Bank program. Rigorous observation by interested NGOs ensured that the process was finally credible and transparent.

The development of new technology for education deserves special mention here, not only because so many fast-growing careers are in information and communications technology but also because Georgia has embarked on a coordinated effort to bring computer technology to schools around the country. As in other reform plans, Georgia is learning from EU successes. Our new program, “Deer Leap,” was designed with guidance from veterans of Estonia’s successful “Tiger Leap” initiative. The program will provide teachers with extensive digital libraries and train them to use this information effectively.

Regional Integration

In December 1991, the Commonwealth of Independent States (CIS) was created to help manage the collapse of the Soviet Union. To many post-Soviet leaders, it was natural to try to knit together the former republics into a binding political and economic unit. Yet after 14 years, unimplemented treaties, unfulfilled promises, and lingering Russian ambitions for control have steadily eroded the value of the CIS. No enduring and viable strategic framework ever emerged to promote the region’s development or stability, as the CIS was permanently crippled by its members’ lack of common values and vision.

The “color” revolutions in Georgia and Ukraine ushered in a third wave of democratization as countries embraced freedom, transparency, and Euro-Atlantic alignment. To reinforce this course, Ukrainian President Viktor Yuschenko and I joined together to sign a historic declaration in August 2005. The Borjomi Declaration proposed a new regional grouping, the Community of Democratic Choice (CDC).

The CDC offers a new cooperative framework for the democratic nations of the Baltic-Black-Caspian Seas region. It aims to strengthen democracy, promote economic reform, and resolve separatist conflicts. In December 2005, the Presidents of Romania, Estonia, Latvia, Lithuania, Moldova, Slovenia, Macedonia, Ukraine, and Georgia, as well as representatives from many more European countries and multilateral organizations, gathered in support of the CDC. During this summit, while heads of state held talks, NGOs from our respective countries also met in parallel. As the first high-level regional initiative to embrace both the governmental and the non-governmental sectors, the CDC offers a strategic bridge between government and civil society—a relationship that has been denied its proper role as a core component of diplomacy and international cooperation. This is not a salutary gesture but a recognition that in Georgia and beyond, domestic policies of reform are intricately linked to foreign policy objectives.