Summary

Structural transformation of the economy is one of the most important determinants of economic development. Almost invariably, nations that have managed to pull themselves out of poverty were able to diversify their economies away from low productivity sectors. In advanced countries, productivity differences between sectors are generally small, and growth mostly happens because of productivity improvements within sectors. Developing countries, on the other hand, are characterized by large productivity gaps between the sectors of their economies. These gaps are potentially good growth engines. When a labor force moves from a low productivity sector to a high productivity one, economic growth happens even if there is no productivity improvement within the sectors. This “development recipe” sounds simple, yet the speed of structural transformation differs greatly between countries. One may say that this is the key factor that differentiates unsuccessful economies from successful ones.

It is a widely recognized fact that the Soviet Union was an over-industrialized economy, with an exceptionally high labor concentration in the industrial sector, as compared to the other middle-income countries in the world.Therefore, after the Soviet Union collapsed, one should have expected an intensive deindustrialization process, which indeed was what happened. Across the former USSR, the transition to a market economy and increased integration with the world market resulted in an immediate reduction of labor employment in the industrial sector and created the need for ambitious reforms. Successful transition economies (like the Baltic countries) managed to implement these reforms in a way which led structural transformation in the “right” direction, i.e,. labor moved from the industrial sector to high-productivity services.

Georgia, unfortunately, was the most distinctive case of ineffective structural transformation following the collapse of the USSR. In the early stages of transition, Georgia experienced several wars and cascades of unsuccessful reforms which resulted in destroyed infrastructure, problems with tax collection, hyperinflation, high corruption and increased criminal activities. This, of course, killed the incentives to invest and do business in Georgia. As a result, excess labor from the deindustrialization process moved into subsistence agriculture. Therefore, it is clear that Georgia experienced a “growth reducing” structural transformation, as labor moved from more productive sectors to less productive ones.

Despite the fact that Georgia experienced a series of successful reforms after the Rose Revolution (2003), the structure of employment did not change that much. The agricultural sector was still the leader in terms of labor employment, absorbing 57% of the employed population. On the other hand, the importance of manufacturing in terms of labor employment is extremely low, with only a 4% share. Furthermore, it is notable that 5% of employed people are still involved in public administration (which is ranked fourth in terms of employment shares). This employment structure is sharply different from what we commonly observe in successful transition countries, which are characterized by a high share of employment in high productivity services, and a low share of employment in agriculture.

Despite the fact that Georgia has been experiencing a growth-enhancing structural transformation, with changes moving in the right direction, the speed of structural changes has been notably low. The fastest change was observed in the agricultural sector, where the share of employment dropped by 4.62%. This is not fast enough, as Georgia is still very far away from the structural decomposition of successful nations. To catch up with developed countries, Georgia should speed up structural transformation by diversifying industrial exports (moving away from raw materials export); creating a comparative advantage in tradable sectors, such as manufacturing; creating macroeconomic conditions to keep exports competitive; improving labor skills to enhance labor mobility; and last but not least, creating and maintaining a good environment for business investment. In any of the above situations, the situation of the organization is quite acute. The organization needs a pre-formed, well thought plan.

Anti-crisis management is a process involving previous crisis management, crisis management, post-crisis actions and decisions.

The paper  presents early detection  of  the threat   and the way of developing a strategy during the crisis.