Power Elites in Georgia: Old and New

Power is never completely impersonal while it is in the hands of certain people or groups of holders of power who are elites and leaders. Choices which are made by elites at a certain stages of state development, the level of power and authority that they exercise in society, determine the success of the process of forming and consolidating a new regime. According to the studies of G. Field, M. Burton and D. Higley, the stability of a regime is directly linked to the degree of consensus among its factions regarding existing institutions and rules of game.[1]

Georgia’s case can serve as an example of it. During the period of independence, three political regimes have changed in Georgia: the regime of President Zviad Gamsakhurdia, who came to power in 1990 and was overthrown by a military coup in 1992; then the regime that was led by old Communist party functionary and former USSR Minister of Foreign Affairs Eduard Shevardnadze who also was overthrown as a result of a “Rose Revolution” in 2003 led by Mikhail Saakashvili. Both regime changes in 1992 and 2003 were cause by rifts in the elite.

Speaking about Georgia, the country is divided into 67 districts and five independent cities. In most cases, the local power was concentrated in the hands of the President’s governors and groups linked to him. Thus the powerful regional elites became those who had personal ties with the country’s president and they formed a separate group in the structure of the national elite during Shevardnadze’s rule.

In reality there were unlimited control over the activities of the district administration from the leadership of the provinces and also its worth to note that the spread of corruption and clientalistic relationships at all levels of government was a feature of Shevardnadze’s reign.

Speaking about the administrative elites of the districts, the head of district administration created a team of colleagues that would fall apart with the departure of the leader from the position of the head of the district. A new administration head had to balance between three different interests: his personal, the interests of the provincial and the central government and the interest of local groups. [2]

Regarding the economic elite, its formation was related to the shadow of the Soviet period. Influential economic groups attempted to establish control over the district administration and in most cases it had illegal nature of the business.

The next type of elite existing during the Shverdnadze’s regime were criminal authorities, who operated in the districts. With their own influence they interfered in conflicts between different groups of regional elites and worked mainly with the old nomenklatura-type elite and business.[3] In the post Soviet Georgian society, so called “thieves in law” acted as a regulator of the power relationships between the various subjects of power.

Another type was Mkhedrioni (“army”) , who represented armed groups active in the years 1992-1995 and played a dual role. In the civil war they were one of the pillars of Shevardnadze’s regime and to some extent gained the official status of militia, however they often displayed criminal behavior and their leaders tried to establish control over the economy. Mkhedrioni in Georgia were something more than just government in government but it was the governmental power by itself.

And the last type of old elite was a party activists. Party activists who came to power after the 2003 revolution were unable to establish themselves in the leadership of the districts as it was in 1991-1992. The lack of resources, such as money or management experience, made the party elite dependent on the support of central authorities.

Considering Georgia in studies of post-Soviet states the terms “clans” and “families” are used. One of examples was Shevardnadze and his family. The dominant position of the family member and close relatives came to the light after the “Rose Revolution”. A Chief Auditor in the Shevardnadze government profited from corruption and assisted corrupt practices for the Shevardnadze family. Another example, the father-in-law of Shevardnadze’s son, Guram Akhvlediani, was the Chairman of the Chamber of Commerce and the leader of the most influential of the subgroups – the “clan Akhvlediani”, which developed business interests in mineral oil and aircraft and controlled the Poti port. [4]

Shevardnadze had many relatives so everyone had its own place under the “sun”. The Banking Sector also was and is occupied by the Georgian economic elite. TBC Bank of Georgia and its group received from the state the exclusive right of bottling Borjomi mineral water, one of Georgia’s largest exports. There also are foreign investors since 2000-2001, which reflected in the disposition of forces among the economic elite of Georgia.

They are individuals who gathered wealth in Russia in the 1990s. The best example is Bidzina Ivanishvili, ex-prime minister of Georgia, who operates primarily in the area of the business of television, began broadcasting his TV Company “Imedi”. But since he decided to leave its position as prime minister, he closed the channel, which served as a tool in his political career. His “Channel 9” had been on air since 1999. By 2003, Shevardnadze’s Union had crumbled and replaced by New Georgia, which promoted a programme of independence, integration into Europe, closer relations with US and NATO, the liberation of the economy and increases in salaries.[5]

This event marked the era of new emerging elites. Five major groups or parties opposed New Georgia: the National Movement, led by Saakashvili, the United Democrats by Nino Burdjanadze with Zhvania in the background, a left Labour party, conservative New Rights party and the Industrialists.

Catholicos-Patriarch Ilia II is the only constant in Georgian political Olympus of the post-Soviet era. A few years ago, right after the victory of the «Rose Revolution», Ilia II expressed its concern with the fact that there is no one, nationally-elected President of Georgia was not able to delegate his powers to a successor in lawful way. When there raised a real danger that Mikhail Saakashvili will share the destiny of the exiles of Gamsakhurdia and Shevardnadze, Catholicos announced as the only way of overcoming this «curse of Georgian policy»[6] is the idea of monarchy.

The opposition seized on the initiative of the head of the Church, because it is consistent with its commitment to eliminate the Institute of a strong President. Till today, Ilia II, remains a national arbiter, spreading the values and ideas, religion and attitudes within the Georgian society, which was clearly seen during the events of the parade of LGBT party in Tbilisi.

After the reign of Shevardnadze, many may say that Saakashvili eliminated corruption but still he had hidden business with Azerbaijan Company “Socar” and many others. The share of the President on each litre was about 22 tetri (= 4 cents), i.e. only from this business Saakashvili clan received approximately 24 million per month.[7] During the Saakashvili’s anti-corruption campaign was designed, first, on the destruction of some of the businesses that they did not belong, and secondly, the creation of «elite corruption».

Yes, at the bottom they destroyed corruption, and participation in corruption was only the right of the political elite of the President and his entourage. The earlier mentioned group created by two members the «Mkhedrioni», which were members of the elite groups inside «Mkhedrioni» under the name of «Baratebi», has grown into a company with a significant regional importance. Business group has extensive contacts with the political elite of Georgia. Its main companion and defender until 2008 was an influential member of the Parliament of Georgia, after which he became a member of the government who has close ties with Saakashvili.[8]

In Georgia, the «elite corruption» or in this world called intellectual corruption when all money belongs to the ruling elite, which, under the flag of democracy actually owns all business, was just such a situation which continues to exist so far: the ruling elite controls all spheres of the economy, including strategic and small businesses. On the background of absence in the country new ideas, new motivations and the existence of income only in upper layers drives us to a situation when the market is frozen, we do not develop innovative businesses and do not receive new. Such situation has developed over the years in the economy of Georgia.

After the next presidential elections, Georgia transformed from a super-presidential to super-premier Republic with a touch of design of parliamentary governance. But the twist is that in contrast to the majority of parliamentary republics of European type, the head of state is not elected in the Parliament, but by a universal suffrage. And if the President is a person, disloyal to Prime Minister, he will soon become a headache for the government. That’s how the current president Margvelashvili was elected, being under the protectorate of ex-prime minister Ivanishvili.

Georgian elite mainly studied abroad and those who made the rose revolution were trained abroad and they had work experience in organization of such activities; and we can say that to the leader positions came more broad developed generation. During the Communists’ the knowledge of Russian language was obligatory because it gave access to all the resources planned by the Moscow Imperial center, it follows that Russian was the oldest language of the elite.

Today the English language has become the second language of the elite which lobbies its interests both within the country and abroad.
Attempts of first president of Georgia, Zviad Gamsakhurdia to declare that the country needs to move in the direction of EU, failed. Eduard Shevardnadze also made some successful steps in that direction but the civil war in Georgia and absence of support from the West forced him to take pro-Russian side. Already Mikhail Saakashvili made significant efforts towards more close relations with EU.

The question of integration is one of those which coincided with the interests of ruling coalition of “Georgian dream” party and the party of ex-president Saakashvili. David Darchiashvili, a deputy of Georgian parliament and chairman of the issues on European integration Committee supported the political and economical integration, however many businessman and entrepreneurs assured that the economical advantageous for Tbilisi are very far perspective.

Also the fact that the relations with Russia improved after the defeat of Saakashvili, Georgian political and economical elite don’t want to disturb the development of trade relations. A perspective to sit on two chairs, EU and Russian, for our elite is seen as easily achievable goal.

[1] Different Governments in Tbilisi, same people in regions: local elites in the years of independence. Research paper. Giorgi Gotua. http://www.ge.boell.org/downloads/Giorgi.pdf

[2]Different Governments in Tbilisi, same people in regions: local elites in the years of independence. Research paper. Giorgi Gotua. Page 207 http://www.ge.boell.org/downloads/Giorgi.pdf

[3] Ibid page 208

[4] Power Elites in Georgia: Old and New. Research paper. Chapter 9. Zurab Chiaberashvili and Gigi Tevradze. file:///C:/Users/user Downloads/10_ChapterIX.pdf

[5] Power Elites in Georgia: Old and New. Research paper. Chapter 9. Zurab Chiaberashvili and Gigi Tevradze file:///C:/Users/user Downloads/10_ChapterIX.pdf

[6] Через революции-К царству. http://www.ogoniok.com/5023/16/

[7]Режим М. Саакашвили: что это было. М.С.Григорьев. Москва 2013. Стр 19 http://democracyfund.ru/userfiles/%D0%9C_%D0%A1_%D0%93%D1%80%D0%B8%D0%B3%D0%BE%D1%80%D1%8C%D0%B5%D0%B2%20%D0%A0%D0%B5%D0%B6%D0%B8%D0%BC%20%D0%A1%D0%B0%D0%B0%D0%BA%D0%B0%D1%88%D0%B2%D0%B8%D0%BB%D0%B8%20-%20%D1%87%D1%82%D0%BE%20%D1%8D%D1%82%D0%BE%20%D0%B1%D1%8B%D0%BB%D0%BE.pdf

[8] Купатадзе А. Изменения после изменений: цветные революции и организованная

преступность в Грузии, Украине и Киргизии (август 2010 г.) // http://research-repository.st-andrews.ac.uk/bitstream/10023/1320/6/Alexander%20Kupatadze%20PhD%20thesis.PDF


Тhe Stagnation in the Economy of Japan After Japan’s „Economic Miracle”

Much of Japan’s modern economic success can be traced to two significant periods in its history: the pre-war Meiji Era and the post-war Economic Miracle.

The Meiji government also created conducive business environment for private businesses to thrive. Shipyards and factories were built by the government and sold at extremely low prices to entrepreneurs. These entrepreneurs eventually began businesses that quickly expanded into conglomerates known as the Zaibatsu.[1] The Zaibatsu controlled much of Japan’s economic and industrial activity.

By the start of World War II, the Big Four Zaibatsu – Mitsubishi, Mitsui, Sumitomo and Yasuda – had control of over more than 30 percent of Japan’s mining, chemical, metals industries, 50 percent of the machinery and equipment market, and 60 percent of the commercial stock exchange.[2]

Although World War II devastated most of the Japanese economy, the social foundations laid down during the Meiji Era contributed to the post-war economic miracle from the 1960s to the 1980s. New constitutional and economic policies implemented by the US during the American occupation of 1945-1952, also contributed to the eventual recovery of the Japanese economy.[3]

Furthermore, although there were attempts to dissolve the Zaibatsu system, the Zaibatsu managed to evolved into the Keiretsu with the six major Keiretsu being Mitsubishi, Sumitomo, Fuyo, Mitsui, Dai-ichi Kangyo and Sanwa Groups.[4] However the greatest contributing factor of the Japanese Economic Miracle was the establishment of the Ministry of International Trade and Industry (MITI) in 1949.[5]

MITI implemented numerous policies that led to heavy industrial growth in Japan. Many scholars have described MITI to have had the greatest impact on the economy of a nation than any other governmental regulation or organisation in the world.

During the post-war economic miracle from the 1960s to the 1990s, Japan experienced huge economic growth – at an average of 10 percent annually in the 1960s, 5 percent in the 1970s, and 4 percent in the 1980s.

Growth in the 1990s slowed down largely due to the asset price bubble in late 1980s, and the crash of the Tokyo Stock Exchange in 1990-92.[6] This period is termed as the “Lost Decade” in Japan. Modest economic growth continued after 2000, but the economy has fallen into recession three times since 2008.

A specialist on the political economy of Japan, Daniel Okimoto and 9 other scholars analyzing Japan’s economic crisis from 1985 through 2000 have identified six underlying causes:

  • Surplus in Savings[7]:
    Japan has traditionally enjoyed an unusually high savings rate and a comparatively low consumption rate. During the decades of recovery and high-speed growth, this “savings surplus” supplied sorely needed capital to private industry in the form of bank loans.This money was used to build and expand Japan’s industrial infrastructure and to achieve the rank of a world-class manufacturing power.

    However, during the 1990s, the “savings surplus”, once the indispensable fuel for high-speed growth, became a serious, structural impediment, leading to a severe slump in demand and causing a heavy drag on Japan’s economic recovery. Japanese domestic saving consistently exceeds domestic investment.

  • Liberal Democratic Party (LDP) and Vested Interest Groups[8]:
    LDP support from interest groups representing protected, inefficient sectors of the Japanese economy has contributed to Japan’s economic malaise but has also made it difficult for the Japanese state to implement the reforms necessary to get back on track.

    Focused on staying in power, the LDP has been unwilling to implement far-reaching reforms or tackle the tough issues, such as the ominous overhang of nonperforming loans (NPLs). The LDP’s coalition of interest group supporters, which supplies money and votes, has lobbied hard to sandbag or dilute reform measures. The unprecedented length of Japan’s asset deflation and liquidity trap is largely due to the absence of effective, far-sighted political leadership.

  • Policy Mismanagement[9]:
    The lack of political will and effective leadership are reflected in serious policy mistakes. These include: the consumption tax hike in 1997, which stifled nascent signs of recovery; the unparalleled slowness in disposing of NPLs. While it would be unfair to blame the bubble, asset deflation, and the liquidity trap solely on Japan’s politicians and policymakers, it is accurate to say that policy mismanagement has aggravated the problems and prolonged the processes of recovery.
  • Structural Impediments[10]:
    The complex structure of Japan’s political economy – particularly the close, symbiotic ties between the economic bureaucracies, like the Ministry of Finance (MOF), and the corporations under their regulatory jurisdiction, like banks and insurance companies – has also contributed to Japan’s problems.

    The interests of the Banking Bureau of MOF and the banking industry are interdependent. There is little transparency or public accountability. Information is hoarded about the actual scope of bad loans. Old methods of crisis management (specifically, administrative guidance) prevail. These elements help to explain why it took the government so long to deal with the massive hemorrhaging of Japan’s financial system. Although Japan has made progress toward developing a more transparent, rules-based system, the problems of nontransparency and weak accountability have not disappeared.

  • Yen Appreciation[11]:
    Another underlying cause of the bubble, sustained asset deflation, and the liquidity trap is the steep, long-term appreciation of the yen relative to the dollar. For Japan, yen appreciation has been a chronic problem. Exchange-rate factors have limited the effectiveness of certain policy tools that might have cleaned up Japan’s financial mess.

    Caught in a classic liquidity trap, for example, the option of designing monetary policy to hit specific inflation targets would be difficult, in part because a sudden, sharp devaluation of the yen would put enormous pressure on South Korea and Taiwan to devalue their currencies.

  • Global Capital Flows[12]:
    Japan’s rapid growth from 1955-1975 and its steady growth from 1975-1991 can be understood as part of a global expansion of trade. But if postwar Japan has benefited from the globalization of trade, it has profited less from the globalization of capital flows. Neither the public nor private sector has handled the liberalization of capital movements as adroitly as the liberalization of global trade.

    Japan has received surprisingly low returns on its massive dollar assets abroad. Japanese manufacturing industries were better prepared to take advantage of the globalization of trade than Japanese financial institutions were to utilize the opportunities created by the globalization of capital flows.

There is no doubt that the poor macroeconomic conditions have contributed to the deterioration in the condition of the Japanese financial sector. The conventional wisdom, concisely stated in the annual report of the Bank for International Settlements, is this:

“The Japanese situation highlights the powerful two-way links between the real economy and the financial system: the depressed state of the economy is hurting the banking system, and the poor health of the banking system is impeding the economic recovery.”[13]

Japanese banks have had low profitability for more than 10 years.
A comparison with the U.S. banking system helps to quantify the low profitability at the Japanese banks and to focus attention on two chronic problems. One problem is the lack of profitability of their lending operations.

Japanese banks’ interest margin has hovered around 1.2 percent of assets. His roughly analogous figures for U.S. banks (which include both fees associated with the loans and interest revenue) are about three times as high, at about 3.3 to 3.5 percent for the time period from 1990 to 2002.[14]

The second recurring problem is that Japanese banks depend more heavily on revenue from lending. In the accounting year ending in 2003, the catch-all category of “other revenue” (that counts all nonlending revenue) for Japanese banks was 38 percent of the revenue from lending operations, while the U.S. banks earned “other revenue” equal to 73 percent of the lending revenue.[15]

In turn, these profitability problems of Japanese banks reflect other issues: Japan’s banking industry is too large in size; it has a poor record in offering new high-margin financial services; it cannot compete profitably with money-losing government lenders; and many of its customers are insolvent.[16]

Japan’s earthquake, tsunami and nuclear meltdown emergency have begun not only to destabilise the world’s third-largest economy, but deepen the economic crisis and financial fragility afflicting global capitalism as a whole. Production halts, rising sovereign debt, interruptions to investment flows and soaring energy prices are driving home shocks to Japan’s economy, with unfathomed international implications.

[1] Economy Watch. Japan. June 2013., http://www.economywatch.com/world_economy/japan/?page=full

[2] Ibid

[3] Ibid

[4] Ibid

[5] Japan’s Economic Miracle: Underlying Factors and Strategies for the Growth By Masahiro Takada http://www.lehigh.edu/~rfw1/courses/1999/spring/ir163/Papers/pdf/mat5.pdf

[6]Economy Watch. Japan. June 2013., http://www.economywatch.com/world_economy/japan/?page=full

[7]Stanford. FSI, APARC., Daniel L. Okimoto., Causes of Japan’s Economic Stagnation., 1999-2004 http://aparc.stanford.edu/research/causes_of_japans_economic_stagnation

[8] Ibid

[9] Ibid

[10] Ibid

[11] Ibid

[12] Ibid

[13] Japan’s Financial Crisis and economic stagnation. Takeo Hoshi. Journal of Economic Perspectives—Volume 18, Number 1—Winter 2004—Pages 3–26

[14] Japan’s Financial Crisis and economic stagnation. Takeo Hoshi. Journal of Economic Perspectives—Volume 18, Number 1—Winter 2004—Pages 3–26

[15] Japan’s Financial Crisis and economic stagnation. Takeo Hoshi. Journal of Economic Perspectives—Volume 18, Number 1—Winter 2004—Pages 3–26

[16]The Journal of Economic Perspectives, Winter 2004., Takeo Hoshi, Anil K Kashyap., Japan’s Economic and Financial Crisis: An Overview http://faculty.chicagobooth.edu/anil.kashyap/research/papers/japancrisis.pdf