TBILISI, GEORGIA–Back in August I could barely tear myself away from my inbox: every few minutes I’d get an update from friends here telling me of new horrors, and fresh attacks by the Russian army. Things were pretty grim that week; I even received a dramatic email from a friend here in the capital saying goodbye; that Russian tanks were heading his way.
Thankfully, only three months later, nearly all that fear and urgency is gone. The city is crowded, vibrant, and bustling, thanks to a roaring economy. Georgia’s economy has grown at an annual rate of 10% over the past two years — even through the Russo-Georgian war — and even now, amid the global downturn, it continues to grow at a respectable 3.5%. The country has enacted a flat tax of 15% on corporate profits, and committed to lowering the personal income tax rate to 15% as well over the next five years. Prime minister Lado Gurgenidze’s administration has also signed legislation which will, over the next three years, abolish taxes on dividends, interest earned, and capital gains. In fact, with no export taxes or barriers, and an import tax of only 0.2%, Georgia may boast the most actively pro-market government in the world.
Tbilisi is beautiful, with rolling green hills, ancient castles, and intricate architecture. Though Russian bombs fell around its outskirts and on its airport over the summer, there was already little evidence of the attacks when I arrived in October. Though small, the airport was modern, well organized and security was at a minimum both coming and going. (Though for some strange reason, most flights arrive and depart at ungodly hours like 3:00 am).
I came here for the annual meeting of the European Resource Bank, which brings together free-market think tanks from across Europe. It was hosted this year by the New Economic School of Georgia, an 8-year old institute that advocates economic and civil reforms in the former Soviet state, and educates young people throughout the Caucasus on personal freedom, limited government and economics.
At the kickoff of the meeting last month, prime minister Gurgenidze discussed his country’s economic plans, and explained that the government is not afraid to implement reforms that could limit its own revenues and expenditures. He quoted Joseph Schumpeter twice in the course of his remarks — a milestone Milton Friedman himself might never have expected to occur in a former communist state.
Khaka Bendukidze, Georgia’s finance minister, the brains and the brawn behind the new economic direction of the government, spoke of the implications of the international financial crisis. Both Bendukidze and Gurgenidze assured us that the invasion by Russia did little to hinder their reforms, which New Economic School director Paata Sheshelidze assured us was true.
Georgia hopes to become an example to the world of the power of free markets. “We are essentially at a crossroads,” Gurgenidze told us. “The dilemma is whether we will continue on our chosen path as a young, liberal European democracy, or whether we will degenerate into something decidedly different.”
“If we’re allowed to finish this experiment, then in 10 to 20 years, the next generation of policymakers in developing nations worldwide might be able to draw inspiration from the Georgian example.”
The Georgians are building themselves up as a new city on a hill, a beacon of economic liberty in a region that’s rarely known it. This is precisely the reason Andrei Illarionov, the former senior economic advisor to Vladimir Putin, contends Russia felt the need to invade: not to protect Russian citizens, but rather, to protect the Kremlin from the ideas and the success of the Georgian experiment. If this former Soviet nation were able to grow and prosper as a free society, why shouldn’t Russians be able to experience the same benefits?
For now at least, in spite of the summer war, Georgia continues on with its reforms, rebuilding its infrastructure, privatizing hospitals and removing all barriers to trade, creating growth the likes of which its neighbors can only envy.
Driving through Tbilisi, the signs of growth already surround you: two years ago electricity was unreliable, and now, thanks to the market, everything is illuminated. Castles, churches, statues, fountains, towers and each and every window were festooned with brightly colored lights.
It’s difficult to anticipate what the future holds for Georgia, but for the moment it remains, against all odds, an object lesson in Milton Friedman’s political philosophy: as economic freedom grows, so does demand for freedoms of other kinds.
-Cindy Cerquitella is a contributing writer to Doublethink Online.
Source: AFF Doublethink Online | Joseph Hammond
Source: AFF Doublethink Online | Emma Elliott Freire