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Harmonize, but do not Harm!

From the ISET Economist news (http://www.iset.ge/news/?p=4633)

By Eric Livny

The “do no harm” (primum non nocere) principle is well known to students of medical schools. It is one of the most fundamental maxims in medicine, as formulated, for example, in the Epidemics book of the Hippocratic Collection:

“The physician must … have two special objects in view with regard to disease, namely, to do good or to do no harm“.

Doctors are taught that medical interventions are not risk-free. Thus, when facing a “problem” one should consider whether to use a particular procedure (e.g. surgery or chemical treatment) or do NOTHING.

Not surprisingly, this very principle has applications in many fields other than healthcare. And it is high time for this principle to be studied and applied in Georgian policymaking.

THE HARM OF OVERZEALOUS “HARMONIZATION”

Ever since signing the EU Association agreement in June 2014, Georgia has embarked on a spree of initiatives seeking to “harmonize” Georgia’s legislative and regulatory environment with EU’s acquis communautaire. The aim, so it appears, is to instantly transform Georgia into a European nation.

It all started on September 1, 2014, with the introduction of new VISA AND RESIDENCY REQUIREMENTS, modeled – so the Georgian public was told – after the best EU regulations, and intended to meet EU requirements as part of the visa liberalization process.

Within just a few months, several other pieces of legislation have been drafted and submitted to parliament (a few more may be in the pipeline without any knowledge on the part of relevant businesses and civil society stakeholders), allegedly as part of the harmonization effort.

  • A new law onLABOR MIGRATION, submitted to the Georgian Parliament in early 2015, sought to prevent trafficking (a goal consistent with Georgia’s obligations under the visa liberalization plan), but also (Article 16) to restrict the ability of Georgian companies to hire badly needed international experts. Hard to imagine, but true! Thanks to a concerted communication effort by the Georgian business community, and goodwill on the part of the Ministry of Economy and Sustainable Development, Article 16 was swiftly removed from the draft law.
  • Recent amendments to the Georgian law onBROADCASTING (Article 64 § 2) restrict sponsorships and limit advertising to 12 minutes per hour. The idea to reduce advertising time to somewhat more civilized levels is consistent with EU rules, yet Georgia seems to be in a particular hurry to tick off this harmonization box. Whereas the Association Agreement talks about gradual “approximation” over a period of 3-5 years, Georgian parliamentarians opted to dramatically accelerate the process by making these truly life-saving amendments effective almost immediately (as of April 1, 2015). Instead of creating harmony, this kind of fast-track overzealous approximation does not allow private broadcasters any time for adjustment, jeopardizing their ability to generate income, produce high quality content, and maintain independence. Unfortunately, suggestions by Rustavi 2 and other TV channels to stagger reductions in advertising time over several years have so far fallen on deaf ears.
  • Yet another example of rushed legislation that appears to ignore the interests of businesses concerns the recent decision to increase EXCISE TAXES ON ALCOHOL AND TOBACCO as of January 1, 2015. The Government’s official aim was to increase budget revenues while harmonizing Georgia’s regulatory environment with that of the EU. Yet, the manner in which the whole process was rushed raises many questions. Georgian companies were not allowed any time to adjust their investment and production decisions, leaving them with excess capacity and losses. Furthermore, the level of excise taxes on alcohol was set at a level exceeding that of many European nations. This was decided without examining relevant demand elasticities, that is, the extent to which higher taxes will affect sales and budget revenues. In a country with rich traditions in home production of high quality alcoholic drinks (that are not subject to excise taxes), demand for alcohol is likely to be quite a bit more elastic than in most European nations. After all, Georgian consumers can switch to homemade wine or chacha, spelling doom for Georgian government’s plans to raise an extra 100mln GEL in excise tax revenue.

A COMMON PATTERN?

Taken alone, none of these legislative initiatives are particularly damaging for the Georgian economy. Georgian companies would have quickly acquired the ability to handle the extra layer of bureaucracy when bringing foreign experts and workers. Broadcasters will raise per minute prices for advertising and sponsorships, and advertising companies will learn to deliver their marketing messages in fewer seconds. Forced to pay higher excise taxes, Georgians will drink less beer and more wine. Breweries will adjust production volumes or export to Azerbaijan. The Association Agreement will be implemented ahead of schedule. At least on paper.

The problem with all these initiatives is that they represent a pattern of policymaking that is very different from the European ideal which Georgia is supposed to aspire to. And, taken together, they defeat the very purpose they are supposed to serve: bring Georgia into the European family of nations.

First and foremost, the manner in which these new regulation are enacted undermines Georgia’s reputation as a great place to do business. A key consideration for new investors is stability and predictability of the business environment. Countries may certainly change their internal regulations from time to time, but this should be done in coordination with the business community, while listening to companies and allowing them sufficient time to adjust.

Second, Georgian policymakers should learn to do much better homework before coming up with new laws and regulations. To do no harm, doctors may prescribe additional X-ray or blood tests. Policymakers can employ standard tools of applied economics analysis to simulate the impact of proposed regulations on tax revenues, GDP, income and investment levels, as well as evaluate associated corruption risks. While common in Europe, none of these tools are used in Georgia. Yet another good possibility is to move in small steps, conducting policy experiments and assessing their impact.

Third, unless dealing with urgent or complicated technical matters (such as Lari devaluation), Georgia’s policymaking process could benefit from greater participation by interested parties. Practically all EU approximation measures could and should be subjected to a lengthy and inclusive process of public consultations that would increase their chances to be politically accepted. In fact, such consultations are explicitly encouraged by the EU Association Agreement.

Last but not least, the hasty attempts to tick off boxes on EU harmonization may undermine the very process of Europeanization the Georgian government is trying to promote. The use of the Association Agreement as a smokescreen for passing dubious laws not only harms Georgia’s immediate economic interests, but also plays into the hands of those political forces that aspire to bring Georgia back into the Russian fold.

*  *  *

The other day, I heard Giorgi Kadagidze, the governor of the National Bank of Georgia, speaking about the need for Georgia to grow at a faster pace, and how faster growth is predicated on the government’s ability to implement painful and costly adjustments. The kind of “second-generation” structural reforms envisaged by governor Kadagidze would take time to implement. Until then, however, there are many things the Georgian government could STOP DOING. In this way the government would save taxpayers money, save itself the embarrassment of backtracking and apologizing, and save Georgian businesses the nervous energy and resources that could be put to more productive uses.

It is time for the Georgian policymakers to learn the Hippocratic principle: do no harm!

OTHER NEWS
05/03/2014
The Baboyans from Village Kush

Armenians have been living in Kvemo Kartli for centuries. According to the 2002 census 31,777 out of 497,530 Kvemo Kartli residents were Armenians. The number of Armenians is highest in Tsalka where 11,484 Armenians live, out of a total population of 20977. The advent of Armenians in Georgia was related to the movement of people during the Arab, Turk-Seljuk, Mongolian, Turkmen, Kizilbash, Ottoman Turk and other invasions. Several major settlements of Armenians took place in 1828-1829, during the Russian-Turkish war

04/03/2014
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Azerbaijanis living in Kvemo Kartli are Turkic-speaking people representing the legacy of the conquerors that came to this area at different times. in the 1926 Census they were referred to as Azerbaijanis. The Azeri population that settled in Kartli is comprised of two streams of migrants: 1. The Turkish-speaking population that was resettled between 15th-18th centuries; they went through the heaviest psychological and physical stress before they adapted to the new place. 2. Migrants who moved from one place to another to improve living conditions having adapted to the new environment. Currently the Azeri population in Georgia numbers 224,606. They mainly reside in Bolnisi, Dmanisi, Gardabani and Marneuli districts, mostly in district centers apart from in Dmanisi muniiciaplity where there are many Azeri villages. Some live in Tetritskaro and Tsalka districts.

02/03/2014
Greek Woman from Tslaka
A small group of Greeks was settled by Erekle II (King of Kartli and Kakheti in the 18th century) back in 1763 in Kvemo Kartli. They worked in Akhtala copper, lead, silver and gold mines and were highly skilled in this business. The next resettlement took place in 1806-1807, and the following in 1829-1830. Turkish-speaking Greeks as well as Greeks speaking the Pontus dialect were resettled to Georgia. The study of archive materials tells us that the biggest stream of Greek migrants entered Georgia during the aforementioned period and their majority settled in Tsalka and Tetritskaro areas.
28/02/2014
Nazi Bolkvadze and her Friends

In 1980’s the planned settlement of a large groups of eco-migrant Ajarians and Svanetians started in Tetritskaro and Tsalka municipalities. There were several streams of eco-migration up to 2003. The advent of these incomers has left its mark on Kvemo Kartli. It became richer from an ethnic, religious and language standpoint, however it also gave rise to new problems and challenges for new and old residents alike in seeking to adapt to the new cultural diversity.

25/02/2014
Natela Argvliani's Family

The first settlement of Svans into Kvemo Kartli took place in 1987. This is when the Svans from landslide-affected Chviberi (higher Svaneti) were resettled in Dmanisi, in the houses built under a government programme. Svans started to introduce their style of life in Kvemo Kartli and establish strong communities in Kvemo Kartli.

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