Summary

A common vision about the issues concerning the direction of development of Georgia’s economy after the restoration of the country’s independence and the model upon which it should be based was not established during the long time.

Coming to power in late 2012, the Georgian Dream (GD) was faced with a number of challenges with one of the most crucial comprising the reaching of an Association Agreement with the EU. A key constituent of the Agreement is the Deep and Comprehensive Free Trade Area (DCFTA) agreement with the EU. For the United National Movement government, adherence to the “European track” was, unfortunately, largely confined to articulation while in actuality efforts were being directed at ensuring that Georgia’s rapprochement with the EU did not materialize. The country had instead mapped a path towards “Singaporization.” The GD government managed to secure Georgia’s signature of the Association Agreement in June 2014, entering into force as of 1 July 2016. Signing the EU Association Agreement and the entry into force of the DCFTA should be assessed as the most significant positive measures taken by the GD government.

European Way of Economic Development Several countries in the post-Communist world have completed the transition to a European- type market economy and have been admitted to the E U. For others—either partly or totally unsuccessful in transitioning—the question of whether or not this kind of market economy could be built is not a subject for discussion. As to the potential of EU membership, such countries have either never set such a goal for themselves or, at best, are considering it in a long-term perspective.

It is no secret that Georgia is not ready to join the EU in the near future. In view of continual official statements regarding Georgia’s striving towards Euro-Atlantic organizations, however, we should know where the country is going. One of the most important aspects of this multi-faceted question is the vector of Georgia’s economic development.

If we would like to see Georgia as an inseparable part of Europe someday, the country must transform into a European-type market economy.

It is not easy to describe the EU’s economic model as it is still in formation itself. According to M. Albert, the EU has been a battlefield of the two key models of capitalism; i.e., the Anglo-American and the Rhenish (German-Japanese) ones.

In the Anglo-American model, the transfer of shareholding takes place quickly and without any obstacles, stock exchanges play a key role in companies’ funding and some 40-60 percent of company shares are owned by institutional investors (such as insurance and pension providers). At the same time, the public sector is relatively small and social policy with respect to poverty and inequality is somewhat liberal; namely, inequality is understood as one of the incentives of competition and the fight against poverty is believed to be not only the government’s function but, rather, also within the sphere of private charities as a part of moral practice and philanthropy.

In the Rhenish model, shareholding is somewhat stable and the banking sector plays a key role in funding shareholder companies. Stock markets are relatively constrained and, therefore, less active. The spheres of regulation are somewhat broad and the government’s role in the distribution of gross domestic product (GDP), ensuring equal competition and addressing social needs, is substantial.

Remarkably, the two models have gradually merged in a number of EU member states under the pressure of the Anglo-American model over the Rhenish. It should be noted that the EU countries do not share a unified economic model. Instead, there is a common economic model which is not yet strong enough to ensure full unification. At the same time, it must be emphasized that the integration processes underway in the EU are oriented towards the increase of the importance of unification; a perfect example is the transition from the common market to the unified market which, in turn, has paved the way for economic and currency unions.

One of the most fundamental principles of the EU is the “preservation of what has been accomplished” which is particularly important for any membership candidate to bear in mind. Whatever has been unified and achieved on the way towards the integrated model must be unconditionally copied by all candidates.

Modern Georgia understands the co-existence and confrontation of the elements of both models. In particular, the Rhenish model prevails in shareholding and company funding which has yielded small and passive financial markets. This is a direct consequence of official policy implemented by the government. On the other hand, the spheres of regulation are quite limited which misleadingly suggest that Georgia fits the Anglo-American model. It is very important for Georgia the implementation of the economic model, which will be based on the synthesis of the Anglo-American and the Rhenish models.