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Slaughter & Rees Report - Amid Washington Wrangling, Georgia is On Our Mind

October 7, 2013 --

One of the more astute observations about the chaotic wrangling in Washington came from an economist at the Center for Global Development, a local think tank. “Next time you blame the woes of developing countries on ‘poor governance,’” he wrote, “have a think about how the U.S. government arrived at today.”

Touche. But rather than try to armchair-quarterback America’s depressing stalemate, we are going to shine a light on a developing country with good governance. Over the past decade, this country’s sweeping economic and regulatory reforms have boosted growth, investment, and hope for a brighter future.  Although few countries fit this impressive list of accomplishments, the Republic of Georgia is one of them.

A country of less than five million people that borders Russia, Azerbaijan, Armenia, Turkey, and the Black Sea, Georgia has moved to the head of the class of the world’s economic reforming nations. “Since the World Bank began keeping records,” said a Bank representative, “no other country has made so many deep reforms in so many different areas so consistently.” Consider the following:

Since 2005, the number of procedures needed to register property has been slashed from eight to one, leading to a reduction in the number of days needed for property registration from 39 to two. (That ranks Georgia as the easiest place in the world to register property.) More broadly, 84 percent of all the business licensing and permits have been eliminated. And since 2004, Georgia has reduced the amount of time it takes to register and start a new business from 25 days down to two and reduced the number of taxes from 21 to six.

Thanks to these and other reforms, Georgia’s standing in the World Bank’s annual survey that ranks countries throughout the world on the ease of doing business has skyrocketed. In 2004, the country was 112th.  Today it is ninth. (A comprehensive list of the reforms enacted over the past five years can be found here. To see Georgia’s remarkable progress compared to the world’s other countries, see this figure.)

Part and parcel of the enacted reforms, Georgia has also made great strides in combating corruption, as the World Bank pointed out in a laudatory report published last year. “Georgia’s experience,” said a Bank official, “shows that the vicious cycle of endemic corruption can be broken and, with appropriate and decisive reforms, can be turned into a virtuous cycle.”

These reforms have not been an accident. They have been part of a concerted campaign by Georgia’s government to improve the business climate and thereby attract investment. And government officials have not been shy about touting their country’s success. A few years ago, they took out full-page advertisements in U.S. newspapers showcasing their status as “the world’s number one reformer 2005-2010.”

This economic and regulatory liberalization has paid clear dividends. Georgia’s average annual economic growth rate since 2004 has been a robust 6.1 percent, and per-capita GDP has increased from $920 to $3,500. Foreign direct investment has dramatically increased, albeit unevenly (a war with Russia will do that): rising from $542 million in 2005 to $1.67 billion in 2007 and then falling to $912 million in 2012.

Georgia’s reforms have also brought praise from the White House. Last year President Obama met with Georgian President Mikheil Saakashvili and said that he was going to explore a number of options to strengthen trade relations with Georgia, “including the possibility of a free trade agreement.” An FTA with the U.S. would no doubt further expand the country’s trade and investment links to the world.

At a moment when the U.S. government and countless other governments are struggling to carry out their basic functions, let’s remember that a country’s public policy environment is a critically important to the investment and employment decisions of global business leaders. On that score, today’s struggling governments could learn a lot from Georgia: a country whose leaders have—through diligent, patient, long-term effort—transformed it from a Soviet satellite into a beacon of growth and opportunity.

Articles © 2013 Matthew Slaughter and Matthew Rees. All rights reserved.
Publication © 2013 Trustees of Dartmouth College. All rights reserved.

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