an old joke that can still be heard at investment clubs from Los Angeles to New York that the capital city of Georgia is ‘Atlanta’.
It says more about the geographical and historical knowledge of American business people than anything else. And yet, the unfortunate truth is that Riga and Tallinn have more name recognition in the Americas than Tbilisi and Batumi. But all that is about to change: Georgia is coiled to spring into high-octane economic growth, like a sleeping panther woken by the smell of fresh meat. Many businesspeople worldwide know the story of the ‘Baltic tigers’. Well, within a decade the business professors could be teaching their students about the “Caucasian Panther.” That panther would be Georgia.
In fact,
comparing Georgia to the Baltics makes Georgia’s economic potential all the more obvious. Let me explain. The Baltic states distinguished themselves for their high economic growth and rapid development between 2000 and 2007, earning them the nickname the “Baltic tigers.” In the economics world, ‘Tigers’ are nations or clusters of nations that undergo rapid growth. Other examples of so-called ‘tigers’ besides Estonia are East Asians nations like Singapore and Hong Kong, Slovakia and Ireland. All of these countries transformed their economies in the decade prior to 2008.
The baltic tigers are the best to compare to Georgia because of their historical resonance as ex-soviet states. And let’s focus on Estonia, the most successful of the baltic tigers.
Estonia is known to have three things that enabled it to grow dramatically in the early 21st century. First,
it adopted smart financial and economic policies in the 1990s: flat taxes, free trade, sound money, and American-style privatisation. Second, Estonia in the 1990s invested heavily in education and technological infrastructure. Third, Estonia was bolstered by international institutions. It joined the NATO and the EU in 2004. The combination of good policies, strong education, and supportive international institutions made Estonia’s economy roar.
Georgia is poised to emulate Estonia by repeating these three conditions: policies, education and a booster from geopolitical institutions, albeit in a distinctly Caucasian way. Georgia has replicated many of the smart financial and economic policies of 2005 Estonia. Georgians are actively building an alternative educational system that takes advantage of the open nature of the internet. Finally, there are historical reasons why Georgia is about to drift into a sea of political stability.
When it comes to sound policies, there can be no doubt that Georgia is a post-soviet leader in smart policies. When it comes to political and civil liberties,
Georgia is still behind the Baltics, although it ranks higher than Hong Kong and Argentina - two nations known for their historic economic successes. Thankfully, political and civil liberties are only weak correlates of economic development potential.
According to Cambridge economists, there is a subset of civil liberties that more strongly correlates, and even predicts, economic growth: personal autonomy and individual rights. It turns out that it matters less how protesters and activists are managed and more whether people are able to make their own decisions with their personal lives - including moving for work, pursuing education if they chose, and maintaining their own personal property without undue interference. On this important metric, Georgia outperforms Mexico, Peru, China, Israel, and dramatically outperforms regional powerhouse Turkey.
There is a lot of evidence that Georgia has the right policies for rapid economic growth. Economists of the world agree that raw material and mineral resources do not fuel economic growth as well as economic freedom.
Global development economist, Jeffry Sachs, famously argued that minerals such as gold, diamonds and oil, are an outright ‘curse’. While this view is considered extreme, contemporary economists agree that minerals are themselves worthless without effective management, which is difficult to sustain. In contrast, when people have economic freedom, they have the ability to start businesses quickly, without substantial fees or paperwork. Economic freedom means lower obstacles to making use of what you have, which turns out to matter more than having mineral riches. In a 2021 report, The World Heritage Foundation ranked Georgia’s economic freedom 11th in the world, higher than that of the United States.
Georgia has the right policies for success.
But what about education? Georgia’s educational system is admittedly abysmal.
The OECD recently ranked Georgia 70 out of 79 countries, lower than Kazakhstan.
But, why does education matter in a free society? Not because a degree guarantees a job (it does not - even in the U.S. or Germany), but because it gives students the skills they need to succeed later in life. Increasingly, technical and financial skills are acquired outside traditional classrooms through bootcamps, code-academies, investment and business clubs.
In Estonia, public-private partnerships enabled students to learn coding skills early, a model that can easily be replicated in Georgia. Organizations like THE INVESTOR illustrate that the private sector can complement a theoretical education, supplying the practical knowledge and skills people need to take advantage of Georgia’s tremendous economic freedom
. Now that internet access is widespread in Georgia, and the world educational systems have been shifted towards online learning in the post-covid environment, motivated Georgians will have increased access to the practical learning they most need to build new industries. So education turns out to be a problem in the process of solving itself. This shows another way in which Georgia’s situation is evolving into one that is functionally equivalent to that of the Baltics in the early 2000s.
But what about Estonia’s institutional situation? Is not Estonia wrapped in the warm love of western political and economic clubs EU and NATO? Yes, of course. And there is no denying that, despite the nation’s obsession with flying the EU flag, Georgia’s future with western institutions is still up-in-the-air. But why do these institutions matter? Membership in an elite club is only of marginal significance except insofar as it brings real security and stability. But one need only look at the long-term trajectory for the region to see that Georgia is poised to have a more stable and secure future. Currently, there is a tragic and nightmarish war taking place between Russia and Ukraine. The war is the result of decades of tension between the CIS and NATO. The inevitable relief of this tension through peaceful resolution will have a profound stabilizing impact for the entire Caucasus region. Yes, Armenia, Azerbaijan, Georgia, and even Turkey and Iran are likely to enjoy the same ‘peace dividend.” However, given that Georgia has the best policies of the region, and that none of her competitors enjoy any special advantage in education, the peace dividend will likely cause benefits to accrue disproportionately to Georgia over the rest of the region. Think about it: where in the region do you think people would rather open a new business, form partnerships, or invest, if not Georgia?
Furthermore, membership in elite clubs can have unfortunate consequences when times are rough. It is worth considering the immense benefit that Georgia’s independence has afforded it.
As of fall 2022, Europe is plunging into a major recession brought on by the loss of trade with Russia, most notably lack of access to cheap oil and gas
. German businesses are being forced to shut down because they cannot obtain the fuel needed for manufacturing.
Things are expected to get even worse: Europe is bracing for electrical and even mobile network blackouts
. How does a nation like Estonia expect to maintain prowess in technology and finance, when work hours, communication and even laptop usage are at risk to winter blackouts or brownouts? (13) Eastern Europe’s loss could be Georgia’s gain as savvy investors relocate to Batumi and Tbilisi for the cheap, stable, hydroelectric power provided by the nation’s energy system.
This is an unstable time for the world economy. Georgia faces macroeconomic headwinds, but these headwinds are actually much worse in Russia and western Europe. Georgia is poised to benefit immensely as the world situation restabilizes in the post-war environment. Georgia has the right mix of sound policies. It is currently growing its nontraditional educational community (including THE INVESTOR). The last remaining ingredient - stability and security - will be provided automatically when at last winds of change replace war with peace.
In the early 2000’s, Estonia became a Baltic tiger. In the 2020’s, Georgia is poised to become the Caucasian Panther. Natives and locals should get a move on building their future through education (like the kind you can get from reading THE INVESTOR). Foreign Investors should jump aboard as well. Everyone with any sense at all should want to get a seat in the community of Georgia while she’s still waking up. When a wild cat decides to move, she pounces like lightning. And no cat can move like the panther.
REFERENCES:
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A version of the joke can be found in Community "The Geography of Global Conflict," Netflix, Sep 29, 2011.
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Baltic and Asian tigers reference. The Economist "Lynx Economies," April 12 2006.
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Estonia’s reasons for growth.
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Journal of Institutional Economics, "Civil Liberties and Economic Development, " Ariel BenYishay and Roger Betancourt, May 20, 2010.
https://www.cambridge.org/core/journals/journal-of-institutional-economics/article/abs/civil-liberties-and-economic-development/9F190E186B840C11C8AF232650F96E44
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Freedom House Index:
https://freedomhouse.org/report/freedom-world6.
https://www.fraserinstitute.org/sites/default/files/EconomicFreedomandResourceCurse_1.pdf
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The Heritage Foundation, "2021 Index of Economic Freedom" 2021
. https://www.heritage.org/index/pdf/2021/book/index_2021.pdf
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https://www.forbes.com/sites/richardvedder/2019/08/01/coding-academies-and-the-future-of-higher-education/?sh=2520e18d1e01
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The Economist, “How Did Estonia Become a Leader in Technology?” July 31st, 2013.
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13. Forbes, "Europe is Heading for Deep Recession"
https://www.forbes.com/sites/kenrapoza/2022/09/11/europe-is-heading-for-deep-recession-deindustrialization/?sh=2fac4da64708 12.
Financial Times,“ German companies halt production to cope with rising energy prices ,” Guy Chazan, August 31st, 2022.
https://www.ft.com/content/d0d46712-6234-4d24-bbed-924a00dd0ca9 Reuters, "Europe Braces for Mobile Black-Outs"
