Bureaucracy – Kadagidze’s Four-Letter Word

Outgoing National Bank of Georgia (NBG) president Giorgi Kadagidze is leaving his post this week and doing so with strong words for the Georgian government. In a controversial speech last week he called out the Georgian bureaucracy for being bloated and unnecessary. He cited foreign examples such as Switzerland who have few ministries and a more streamlined process of administering the executive functions of government.

What does Georgia’s bureaucracy look like? It has nineteen ministries. The massive bureaucracy of the United States has fifteen departments (and several dozen agencies). Kadigidze’s favorite model, Switzerland, has seven. Why have ministries of Euro-Atlantic Integration and Diaspora Issues when the Ministry of Foreign Affairs is charged with Georgia’s diplomacy? Who speaks to the EU vis-à-vis the association and free trade agreements? Why have ministries of Culture and Sport when a department like Education and Sciences could likely assume its duties? Georgia certainly doesn’t need this much bureaucracy, so the main questions to consider now are: 1. what is the right level of bureaucracy for Georgia? And what should Georgia do with the money it saves from a potential downsizing?

Does bureaucracy make a better government? That is a complicated question. Certainly we cannot expect a state to function and distribute public goods without specialists in a variety of technical areas. However, given their expensive nature, and the fact that they are often the subject of the ’just how much should government do?’ philosophical debates, bureaucracies are a hot button issue in most countries’ politics. For right-wing libertarian policymakers, bureaucracy is a swear word. It was the messiah of the contemporary neoliberal movement Ronald Reagan who hyperbolically said, “The most terrifying words in the English language are ‘I’m from the government and I’m here to help’.” What this disposition fails to realize is that government has to have some form of apolitical staying power from administration to administration. It has to have the authority to enforce laws, ensure safety, and provide services such as standards, education, and diplomacy with other states. Having worked in US bureaucracy myself (as a Russian analyst with State and Defense departments) I am a proponent of technocratic and apolitical experts working across different administrations as critical to the functioning of the American government and ensuring its interests around the world.

We can assume that some bureaucracy is healthy, but too much creates for unnecessary government spending. Georgia likely has the latter problem. However, a downsizing would likely result in hundreds or perhaps thousands of government positions closing if the country is to “save millions” like Kadagidze says. Certainly, the government’s budget would be trimmer, and it would have to collect fewer taxes to service its needs, but merely cutting ministries would not be enough to spur economic growth, it is what is done with that money that would make or break Kadagidze’s claim. By releasing that saved money back into the “wild” of Georgia’s and the world economy, there are no guarantees that this money would work for the Georgian people and economy previously receiving services from the ministries their tax paid for. Alternatively, these “millions saved” could be repurposed into more impactful government programs such as expanding social welfare for pensioners or the unemployed, or on incentives for innovative industries. An influx of cash to these areas lets the money work for Georgian interests rather than gambling on the free market returning some benefit to the country.

After the Rose Revolution, the Georgian government was structured on Reaganomic principles (remember when Saakashvili conceded defeat in 2012 with a bust of Reagan behind him on TV?). Recent economic research shows how in fact neither side – neither the big spending left, nor the thrifty right – have the holy-grail answer to the correct size for a government and its spending habits. The proper way to spend government funds depends on the current state of the economy, according to a National Bureau of Economic Research (NBER) working paper by Johns Hopkins economist Carlos Vegh. Vegh and his research partners found that counter-cyclical government spending is the most effective way of mitigating future output shocks. Put simply, expanding government spending when the economy is down lessens the relative size of the inevitable future economic shock. Cutting government spending under the same conditions has the opposite effect. With the Georgian economy currently stagnant and at risk of possible recession, now is not the time to cut government spending.

But cutting ministries could potentially be a win-win-win for Georgia. It would end wasteful spending on ineffective government programs. The repurposed money could work for Georgia’s poor and marginalized citizens. And it could create a more internally diverse and sound economy that would not be so susceptible to economic shocks from Russia, the EU or elsewhere. Kadagidze has started a very important public debate, and we should finish it for him.

Charles Johnson