5 and State-Led Economic Policy in Georgia

Political leaders in the post-Soviet Eurasian region have understood that broad-based economic development is a key element in generating political support and therefore indispensable to the stability and durability of their political regimes. Within the region, Georgia is an illustrative case in the study of strategies for generating output legitimacy through economic policy. After the failure of Shevardnadze’s presidency (1994– 2003), which left the country suffering from endemic corruption and a moribund economy, the Saakashvili administration introduced rigorous liberal economic reforms. These reforms were linked to the idea that a state retreat from the economy and the creation of an attractive environment for foreign investors would stimulate economic development, and resonated well with the general anti-corruption agenda after 2003. However, in 2008 the government changed its economic policy once again, increasing the level of state economic intervention and coordination. The impact of the global financial crisis and the August war with Russia – boosted by more general shifts in the global environment toward an increasing economic role for the state (Bremmer, 2009) – encouraged the government to adopt this new economic policy. Georgia exemplifies those countries in the region that pursued a liberal economic approach in the years following independence, but over time accorded the state an increasing role in the promotion of economic development. Unlike the state-capitalism approaches found in Russia or Kazakhstan, these countries have to find alternative answers and institutional solutions if they are to successfully reconcile this state intervention and coordination with continued integration into global markets. Therefore, a theoretical framework is needed that describes the conditions and administrative prerequisites necessary to combine competition-based markets and state coordination. The analytical