The Brutal Revolution

When offered the ISET director job back in March 2007, I did not think twice. Everything I’ve read about Georgia until then was incredibly positive. Livable, hospitable, beautiful, corruption free, etc. etc. The latter part sounded particularly promising given that during my last days in Moscow (I lived and worked in Moscow from 1993 till 2007) I had my brand new BMW motorbike stolen in broad daylight by a local police officer (sic!) who knew that I am about to leave the country and probably thought that there would be no use for motorbikes on Georgia’s terrible roads. (Actually, it was an off-road bike, but never mind – all he really cared about was his own impunity).

My first encounter with a Georgian traffic police (“patroli”) officer lived up to my (very high) expectations. The guy spoke English, was polite, professional, and helpful. He even looked good in his American-style uniform!

As a matter of fact, in contrast with everything I knew about the post-Soviet bureaucracy, “professional, polite and helpful” applied equally well to every single representative of the state I had to deal with in Georgia – the border police, customs and ministry of education officials.

It all seemed to be too good to be true. And, indeed, in mid-June, I experienced my first (slight) disappointment with the “system” when power supply to our house was unexpectedly cut. As it turned out, we missed the payment deadline by about a day, which was reason enough for the electricity company to disconnect us from the grid. With no prior notice, on a Friday, with the temperatures hovering around high 30s, and no ability (or desire) on the part of the company to restore electricity supply until after the weekend.

The brutality of it all was certainly no fun. But, as an economist, I was also puzzled: disconnection should be a ‘weapon of last resort’, not the first step in dealing with an absent-minded client who had never before missed a payment. The electricity company, I thought, could actually profit from the late-to-pay customers by continuing to sell electricity while charging penalties and interest rate to the amount of overdue payments. With the nuclear “disconnection” option remaining on the table, the client would have no choice but pay. Maybe late, but in full.

BRUTALITY EXPLAINED AND JUSTIFIED

While the fear of missing a payment deadline remained a source of stress, my state of bewilderment with Georgia’s brutal enforcement system was greatly helped by watching Power Trip, a must-see documentary by Paul Devlin telling the story of an American company trying – and failing – to resolve the electricity crisis in Tbilisi.

Having bought the city’s bankrupt state-own distribution system in 2000, the company invested to the tune of 100mln USD in new equipment hoping to stabilize electricity supply – marred, until then, by frequent blackouts. Yet, while perhaps sensible under normal circumstances, the company’s business plan collapsed for one simple reason: Georgian customers were not used to pay for electricity, preferring, instead, to steal. And, crucially, enforcement turned out to be prohibitively expensive – and politically impossible – in a context in which citizens have been for years pretending to be paying for public services that the (failed) Georgian “state” has been pretending to provide.

Additional reading helped me understand that, until 2003, Georgia had been trapped in a vicious circle of pretense that encompassed all aspects of citizen-state relations. Existing in name only, the “state” pretended to provide law & order, public infrastructure and utilities, insurance for health and old-age disability. Georgian “citizens” paid in kind – by pretending to contribute to health and social insurance, evading taxes and bribing off “public servants”.

The reality was that anyone living and trying to do business in Georgia had nobody to rely on other than themselves, informal social networks and … the mafia. People did not pay taxes and did not expect to receive any government services in return. They learned to provide for all their needs, including security of own life and property, contract enforcement, heating and electricity.

Breaking out of this vicious circle required no less than a brutal revolution. In state affairs and in people’s minds.

“DIZZY FROM SUCCESS”?

United by a clear vision and knowing that the broad popular mandate they have enjoyed in 2003 will not last forever, Georgia’s revolutionaries gained their place in history by taking unprecedented steps to break the criminal gangs and restore trust in state institutions.

First, they created an effective repression machine to convict mafia bosses, gangsters, petty criminals and drug dealers, pushing crime out of Georgia’s borders and bringing the country’s prison population to world record levels (per capita). To perform this task, the criminal justice system was reengineered to presume guilt – not innocence, – subjecting its victims to lengthy pre-trial detention periods and masterfully using the plea bargaining mechanism and pliant courts to extract confessions and money.

Second, they stripped the Georgian state of any imaginary functions it pretended to be performing, using massive layoffs to reduce and renew state bureaucracy (including, famously, the entire the traffic police force), slashing taxes, regulations and whole agencies in charge of their “enforcement”.

Third, they created a corruption proof public administration system reducing the bureaucrat to a robot undertaking simple automatic routines with very little room for discretion or judgment. In stark contrast to the jolly corruption era days, the greatest challenge for Georgia’s public institutions (including, alas, state universities) was now to find somebody willing to take responsibility. With the legal repression system operating in full swing, applying a signature has become the Georgian bureaucrat’s nightmare.

The brutal strategy of “zero tolerance” and ruthlessness in the pursuit of freedom and decency was a key factor in the Rose Revolution’s success – in just a few years – to break out of the vicious circle of crime and corruption. And what a great success it was! The young Georgian generation – for instance, ISET students – does not know how to give or take bribes; their older siblings and parents are now used to paying their taxes and bills in full and on time. No Georgian in his/her own mind would ever miss a payment. Even the share of bad loans in Georgia’s banking system remains extremely low despite the great difficulties experienced by Georgian households (and businesses) in the wake of Lari devaluation. And then, of course, there are the smiling and professional patroli police and street level bureaucrats that have become symbols of Georgia’s new statehood.

TAKING BRUTALITY OUT OF THE SYSTEM

Dizzy from success and global fame, Georgia’s revolutionaries did not realize, at least not in time, that the brutal system they created had to be gradually dismantled, giving way to a more ‘normal’ set of institutions. The result was a painful political defeat in October 2012, public disgrace, forced emigration (and new political careers!) for some, and prison terms for others.

Riding to power on a wave of popular protests against legal abuses by the Saakashvili administration, the Georgian Dream coalition government quickly acted to reset Georgia’s brutal justice system. Some of the very first steps it took included a massive amnesty to reduce prison population to more ‘normal’ levels, limiting the use of pre-trial detention and plea bargaining mechanisms by the prosecution (thus restoring the ‘presumption of innocence’ principle); and, last but not least, granting greater independence to the judiciary.

What is being less well understood by the Georgian policymakers is that the country’s public administration system and its ‘spirit’ are also in urgent need of resetting. So far, suggestions to ‘soften’ the system – by creating greater space for judgment and tolerating mistakes – have been rejected for fear of reopening the door for corruption, tax evasion and/or a culture of non-payment.

But are such fears really justified in today’s context?

Given the tremendous and irreversible cultural change it has gone through since 2003, Georgia can gain from relaxing many rules and regulations that were a good fit for the early days of the brutal revolution. For example, giving customers a few weeks to settle their bills (while charging penalties and interest rate!) will not spawn a culture of non-payment as long as the new rules are clearly communicated and enforced. Moreover, such ‘normalization’ will only do good for Georgian utility companies (and, most certainly, their customers). Likewise, allowing bureaucrats to take quality and providers’ reputation into account when conducting public tenders will result in much better procurement decisions without necessarily resulting in favoritism and/or waste of public funds.

Ironically, when I complained about excessive rigidity in Georgia’s public procurement system (very low thresholds for holding tenders, exclusive reliance on price competitiveness) to Kakha Bendukidze, a chief architect of Georgia’s reforms, his characteristically humorous response was that “our rules were designed to make it impossible for public institutions and state owned enterprises to function. Everything should go private.”

Whether Kakha was joking or not, excessively rigid public administration rules are a curse not only for the public sector, but also for Georgian businesses and households. One of the main complaints by the Georgian business community nowadays is the manner in which businesses are audited by the Georgian Revenue Service. For fear of mistakes (that would not be tolerated), tax police takes months to complete an audit, effectively paralyzing the business in question. Any findings result in the maximum allowable penalties. “Look,” a Georgian tax auditor would typically say, “I know you don’t owe as much in taxes, but this is what I have to do. We have a very good tax arbitration system. They should be able to help. Sorry about that, but in the meantime I have to freeze your bank account”.

Forcing public institutions to buy the cheapest services (regardless of their quality), cutting electricity supply whenever a client is late to pay, and forcing businesses to go through a lengthy tax arbitration process (while having their accounts frozen) are extremely costly and inefficient ways of conducting public administration. Georgia should be able to do better. And, thanks to its brutal revolution, it can afford doing so!

Eric Livny