For new paradigm issue of Georgia’s economic development

1.Introduction

Our society has become unused to talk about economy in general and in particular on economic policy. Phantom of extreme economic liberalism emerged since 2004 has gradually turned into bureaucratic-administrative regime of disciplined society, which necessarily replaced institutional economic recommendations to libertarian approach and all this gained completed forms in concepts postulated by theorists of open society. Therefore, we were dealing with impulsive changes ongoing in economy that we could not call economic policy as it was not derived from complex economic regularities taking place in the country. The situation significantly changed in 2012 when new political force “Georgian Dream” offered the public its own political visions for the development of the country. After winning parliamentary elections hope arose that tradition of preliminary determination of purposeful economy will still revive in Georgia.

In January 2013 new political force offered society main indices forecasts of economic development, growth of GDP by 6 % and inflation not higher than 7 %. In addition, expenditure vector of budgetary resources has changed as well. It became more explicitly oriented on domestic market needs and social protection problems of population. Investment environment has also changed; ties have been established with large international financial corporations, that stipulates integration of our national economy with international market centers, in exchange for integration with peripheral part of globalized economy. Besides, the government considers that due to the inactivity of economy, substantial changes in terms of improving living conditions of the population are not expected in the current year, considerable changes in economic growth parameters should be expected from 2015. Unfortunately, the mentioned declaration is not born out by any calculations or ongoing institutional changes in the country.

Due to aforementioned, we have nothing left but to remain calm. Country’s economy is in reliable hands and there is an optimistic expectation in Georgia. However, at the same time there is the necessity of participation in the processes that stipulates different views in several issues of specific importance and comes from those alternatives, which are created as a result of uniting existing peculiarities of economic factors. It should also be taken into account that the team responsible on economic policy, nowadays in Georgia actually represents kind of inclusive unity, where people of diverse vision and oriented on solving various target problems are working. There is not enough coordination and concerted activity is nearly impossible in a number of issues among them. National Bank, Chamber of Control, Regulatory institutions of different sectors of economy, regional and municipal administrations, entirely remain in the President vertical and continue vicious tradition of impulsive interference. Accordingly, new political force has to overcome complex administrative and legislative obstacles that substantially reduce effectiveness of their endeavors. Society feels temporary nature of this condition and treats many problems with understanding. At the same time, some positive criticism can be heard, resulting from common interests and is imbued with sense of essential involvement within existing transformations.

Transition ongoing in country, from institutionalized determination, characteristics for disciplined society, into real economic processes, does not occur smoothly. This transition is related to the transformations of market processes and thus is a painful process. It reveals itself in the format of unhealthy, temporary but acute processes. For instance everybody sees:

• The intensity of changes in media, especially advertising market and capabilities of press and TV-Radio broadcasting.
• What has been done at the book market in regard with publishing school-books also bears essential character.
• Similar problems have emerged in football.

Similar events are expected to arise in other areas of social life. All this suggests that current transformations are based on inadequate purpose. It’s true that although we do right things in bad way we still arrive at good result, however it’s better to do it well and the outcome will be even better.

Efforts for returning such competitive market have made those problems evident, which took place in railway, ports, Chiatura-Zestafoni industrial enterprise and etc. So many new tasks have emerged in our economy that as you can see has appeared due to the necessity of restoring competitive environment on domestic market, some of them existed in latent form even earlier, as its reveal was linked to functioning of repressive mechanisms of disciplined society. Hence, it is necessary to conduct clear and coherent economic policy in Georgia. Calls of authoritative politicians that they understand existing situation and they demand trust from people can not deal with the case. Economic policy document is needed and our society feels it.

What kind of economic policy should we have? I agree with Mrs. Nana Devdariani when she defines policy of small countries, as directed towards the purpose to maintain its own independent interests, flexibility, inherent and dynamic efforts, within international community, that is often manifested by apparent hostility and calls it “Cane Policy”. What kind Georgia’s’ economic policy in terms of adaptation and integration within global economic field is. Brief excursion shows that unfortunately we had:

• complete disregard of global trends;
• “attempt and error” and
• “Indiscriminate pursuance” policy;

We neither have time nor opportunity to describe each of them, but to note in a nutshell neither has brought anything substantial but only complicated our common social conditions. In spite of this, it should be mentioned that in the period of “attempt and error” when we were learning cooperation in world global environment and deciding problems of strategic importance due to our geopolitical condition, they had brought us many significant outcomes. New stage of our economic development launches since 2013. The year 2013 is the year of changes of economic development paradigm and entire society counts on it. “Not everybody can create history but we are obliged to take part in the history”, the words of Albert Camius are actual in Georgia and it seems that won’t lose its actuality in future either. Thus, I feel appropriate to express some of my opinions on further transformation directions of our economy and formation of mechanisms ensuring these transformations.

2. In search of new economic paradigms

In the 20-ise of previous century, during big economic discussions, John Kane expressed his opinion that government of the countries are obliged to seek economic development model for their own countries, constantly improve existing economic leading system. In his view, sense of economic policy stipulates searching appropriate model for country’s development.

This fundamental importance concept of Kane’s is confirmed by long term cycle theory of Kontradiev and Juglar. According to Kondratiev cycle, the world at present is in (fourth cycle) recession (downswing) phase, economic expansion (the fifth cycle) will begin from 2018 years and it is essential to start preparation for this period.  The  only way to get ready for upswing is technological innovations and to put them into economic practice. Considerable fact is that diffusion of these novelties occurs exactly in the period of economic recession, which expresses their vitality in the upswing period. Comparison of South Korean and Japanese economies showed that South Korea could not respond in time to such cycle and in comparison with Japan it managed to orient economy on new technologies 40 years later. The same is confirmed by Juglar statistical regularity analysis. Thus, those who try to regulate own national economic processes in the right way and care for people’s welfare shall be ready for it from the beginning.

Economy is crucial sphere throughout the whole areal of human cohabitation, but when we consider it in the view of one country, as Jan Tinberger teaches us, it clearly faces task ensuring other, non economic social-cultural regularity existing in society. Thereby economy should be comprehended in the unity of national social development and in often cases it will be a method of determining usefulness of social trends.

Proceeding from the above mentioned, we came upon the necessity of elaborating new economic paradigm. We need it in order to create such economic model of country’s development that provides formation of material basis for citizen development. Of course, we won’t be able to clarify the whole variety of theoretic-methodological basis of Georgia’s economic development within the frames of one article, but we will try to express our views on conceptual origins of Georgia’s economic development. I think I will contribute formation of new economic paradigm. Herewith, I will remark that we understand the term conception as system of views, based on which transformations in economy should be carried out and mechanisms of its transformation be created. And, any of them, including Georgia’s economic development conception should be directed to creating:

• economic individuals free intention ethical, current practice oriented on specific- historic study and
• on the basis of natural conditions, development level of technics and technology, nature of social institution and legislation
• Coming out from targets of economic entities, use of limited alternative resources, rational creating the best conditions

In this respect, the main target task of political guarantee for economic progress in the state is to improve qualitative indices of development of the society and its each member (person), which is constantly alterable within the existing conditions and thus when determining strategic direction of development the question is posed not “why” but “what for”, which is in this case devoid of theological sense and defines, what should society expect in case of upcoming changes, its historic-cultural traditions and the people.

While defining overall nation-wide tasks of economic growth, its efficiency criterion is presented, on the basis of country’s cultural-historic development regularities and overall conditions of the whole society existence, establishing right proportions between economic and other non economic relation systems, for the economy to be able to create material conditions to ensure all essential needs of social cohabitation.

Within the entrepreneurship process, choice of alternative usage of resources creates stimulus of economic activity and danger of wrong exploitation of these resources, thus economic development conception should be based on sustainable development principles that should be perceived on the grounds of Brundtland Commission definition i.e. “economy system is sustainable which takes interests of future generation into account, while satisfying its demands”, therefore we should prioritize those versions of resource potential usage of our country, which in case of engaging in economic turnover (joining economic factors) gives maximum effect in terms of country’s sustainable development.

While formulating specific conditions of country’s resource potential usage, defining upcoming efficiency criterion, we shall come out of the overall dynamism of the world market, in this view, special study of global economic cycle action regularities and its possible impact features on current economic processes in Georgia is required. This is principal as long as Georgia’s macro economy, as open system, might be endangered due to the impact of external factors.  We have a lot of such examples from not so distant past. Thus for maintaining existing dynamic balance of the society (for homeostasis) specific mechanisms should be worked out (negative feedback), in order to avoid the danger. For this purpose, we shall seek (find) within the current process of our country’s economic development, simple and tiny elements of its functioning, institutional forms of which enable us to explain features of economic system action on given stage, and also elaborate mechanisms, coordinated system of which will give us opportunity to maintain internal dynamism of our society as an open system. i.e. in order to be able to embody our resources within the bounds of our interest.

For the fact that state represents subject of economic development conception, which is the legitimate power, that ensures efficient activity of economic process participants and promotes their development so that it won’t limit entrepreneur’s free choice by own power (power won’t supersede freedom), consequently legal norms (legislation) elaborated on the basis of state’s economic policy shall be construed as condition for entrepreneurship and entrepreneur activity.

Resulting from the essentiality of working out economic policy that authority faces, the principal task of economic development, by utilizing global trends and own limited resources, is to achieve:

• improvement of environmental conditions of human development
• Efficient usage of material resources (foreseeing demands of future generations)
• organizing spatial arrangement and communication facilities throughout the country

Therefore, such growth of economic aggregates (indicators), wealth accumulation and formation of distribution mechanisms, which, within the equal conditions of social capital provides:

• development of essential non economic directions for operating in modern global environment,
• Maintain its internal condition, namely will reach dynamic balance, between the trends of efficient exploitation of material resources and cultural-historic development

Economy shall create general conditions of free democratic development of population:

• Exploitation of resources, technology advancement and human capital improvement,  social capital development , with the assumption that not less than 70 % of GDP shall be spent on development and creation of human capital and social capital, such determination is characteristic for developed economies and guarantees further proper dynamic development of country.

• At the same time, economic development shall be reviewed as ground of historic-cultural development of society that stipulates wide utilization of economic criteria and mechanisms within social relation system. As per to this, we shall widely use economic criteria in other areas of social functioning.  So it shall be considered as effective usage methodology of already accumulated wealth.

As a result of afore mentioned, elaboration of effective and goal-oriented economic policy is feasible in case if society is well aware of general social mission, that country faces, in the form of economic growth. For there might occur such circumstances that economic growth might turn into self-aimed phenomenon and not reflect on people’s living conditions, growth does not always mean development.

3. In search of synergy

In his speeches, good shepherd Ilia the second Catholic-Patriarch calls us towards synergy. Seeking synergy is one of the main directions for our development. It is true that from the standpoint of our Christian belief and economic development position, synergy is the term of different essence but, call of Ilia the second for synergy is so timely and actual that it becomes the cornerstone of new economic paradigm. Within the frames of national economy, when discussing economic processes synergy (was more than sum of integral elements) is a macro economic characteristic. Reaching synergy in modern global setting means, to be correctly and efficiently integrated in the world market and simultaneously possess mechanisms that ensures own economic originality, by the means of which economic activity outcome will be directed towards country’s historic-cultural development.Therefore, synergy implies such systematism, when optimal development version is reached, which employs surrounding conditions on the phylogenetic basis of its society. For clarification of this notion, let’s consider national economy in correlation with its settings.

Any country’s economy is an open developing system. When it is closed (when countries, for political reasons try to minimize economic ties with outside world and implement strict state control, or other partner countries are unwilling to cooperate with them for political reasons as well)  even at that time it is open, as the world market dictates regularities of fundamental importance of country’s economic development. Accordingly, in the light of systematize, degree of free movement of money, capital and work force appears as the main characteristic of macro economic development. Free movement of capital functional forms in the given economy, stipulates uniting market criteria of alternatively usable resources. Thus, national economy is construed as formation of spatial area of joining existing resources within the whole macro economy, including entered and already operating foreign origin capital (branches and representations of transnational and other foreign companies, as inflow of work force, is considered as national economic subjects), for what, due to the competitive conditions existing on global market, economic efficiency of joining resources existing at country’s disposal is defined. Consequently, while studying economic development, given macro economic setting gains high importance.

Any environment of macro economy represents complex notion. It refers to its external as well as internal area of  the existence. Thus internal and external setting of economic functioning are differentiated. Internal environment is that has no concern with outside world and represents the essential condition, which ensures system homeostasis.

In material form, if economic environment includes entire state property potential (mineral resources + existing entrepreneurial and social capital), internal setting is its integral part that does not directly involve in global affairs such as: roads, surface and underground communications, mineral reserves, water pipe supply, those institutional attitudes in the form of economic relations, that is formed for the purpose of effective usage of economic resources. At the level of economic relations this is the whole system of internal market activity, which is organized on the basis of legislative as well as traditional local relations, including, proprietary relations and institutional form of enterprise, which undergo indirect impact of globalization. For example, goods produced from public ownership pastures, qualitative index of human development, social capital, where international trends of defining economic value system do not apply, where assistance plays determinant role, as well as historic-cultural traditions and industrial relations based on them, which are considered in the aspect of cultural diversity that gives specific tint to national economy.

External environment is the area of functioning of national economic (macro economic system of given state) which is conditioned by its foreign obligations and economic activity as a result of global regularities implemented according to the efficiency criteria.  Work force, money and capital migrated from Georgia as well as capital entered in Georgia, of any industrial function, represents elements of balanced relations with economic environment (with world market).

Internal and external environment of national economy in unified systematic create country’s macro economic setting, that represents material and non material factors of economic functioning and  unity of industrial processes accomplished on the basis of their joining. That’s why when we say “macro economic environment” we refer to unity of industrial union, separated from entire system of economic functioning via abstraction force and spatial area of its implementation.  Georgia’s economy is developed within the bounds of the world market and its active influence. Conditions of our involvement in the world market is defined by organizations responsible for general economic trends, advanced capital of foreign origin,  together with internal environment of economy creates united structure of public industry, united national economy.

Therefore, development of national economy falls in the conditions of country’s resource potential, technologies existing here and world market demand. Impact of these conditions on economy is very high, that comes from, industrial factor’s specific joining and criterion system dictated by world market and is stipulated by influence of global competitive environment. Therefore, competition as an adequate form of enterprise development shall be reviewed resulting from global market dynamism and not only from the view of conjuncture conditions arisen on local market, which is also attached great importance. When defining investment policy, we shall also come out of financial market regularities and widely use approved market mechanisms in developed market systems.

As part of the world’s global industrial field, open system takes new important opportunities from world economic trends. However, threats occurs as well, which is directed towards wrong transformation of economy, accordingly, for their neutralization purposes, it is necessary to build such industrial mechanism, that will strengthen macro economy, create basics of  internal market development and form systemic growth of internal permanence skill, for development of dynamic balance existing between economic and non economic segments. In this respect, concrete objectives of institutions responsible for development of national economy, represents choosing such way of economic development that will specify its originality and high development level of non economic social area.

When we consider economic activity, as a choice, main attention should be drawn to what effect will it have when using separate resource on the world market. Important fact is how we enter in the global economic environment. In the process of problem analysis its important to understand that it does not matter whether we review the issue from the point of export-import position or from the capabilities of local market. Thus we develop export-replaceable product or create conditions for sales on site.

Resulting from the competitive environment of the world market, we shall be aware that countries are not rivalries on the world market, firms come out in the form of enterprise subject and state, if it’s really interested in bearing responsibility on welfare of its population, should actively be involved in this field in two directions:

• Consider internal market as unity of existing and potential consumers, on this basis, creating conditions to firms for adjusting to internal markets and at the same time creating antimonopoly mechanisms of any market segment,
• Promoting firms (aiding) in searching foreign market and earning respected place on site.

Consequently, improving competitive environment should be reviewed widely and not as state antimonopoly activity.

Based on international experience (as developed as well as developing countries) in battle against international competition, at the first place, labour-consuming fields such as: agriculture, manufacture of agricultural products and light industry receives aid from state. States are trying to use international trade mechanisms (quotas, tariffs. For instance Japan has 1000% custom duties on rice production that significantly raises its price on world market). Also create supporting mechanisms for farmers.  In this term, the world’s most ancient and popular agrarian policy went through certain stages:

• Intensive (Formation of cattle breeding and plant growing as united system)
• Competitive (improvement of soil fertility, cultures, species and growth of productivity on its basis)
• Locational (support farmers in forming as cattle breeders. E.g. the main problem of stolypim reform was land “razviorstka”, allotting so much land to peasants that would ensure his formation as cattle-breeder. The kingdom of England acted with the same methodology from the end of 18^th century, under the recommendation of Francis Bacon (here the criteria of attaching rural land to owners represented creation of opportunities for farmers enabling them to bring up their children within certain prosperity and freedom, otherwise people grown up in a different environment were not suitable to serve in infantry; cavalry was formed by feudals).  This model is very actual for us, as agricultural plots are divided into 2.4 million land parcels, out of which more than 600 thousand is in the ownership and 95 % of land proprietors will not become farmers.
• Diffusion model, (supporting high agricultural achievements, test of species, providing new selective material and etc.)
• High reimbursement models, (in favor of farmers)
• Model of stimulating novelty (related to genetic engineering and modern scientific achievements)

Location model is especially important for us, which will be adjusted with novelty stimulating model. i.e. state should take care and promote farmers, in order to enable them to earn place on local market (mainly) as specialized cattle-breeders, help them in mastering modern agricultural achievements, resulting from their capabilities and economic efficiency. This is substantial as long as, labor-consuming fields such as: agriculture (manufacture of agricultural products) and food industry provide employment opportunities. (from 100 tones of barley we can get 700 000 liters of beer and by refining remains with other compositions such as grass, stubble and soy we get 500 tones of food for cow, or enough to feed 100 cows. If we follow from barley reprocessing to cattle breeding, we can see that it is quite labour-consuming direction and provides creation of many jobs. Particularly, in order to produce 100 tones of barley, one employed, qualified manpower is enough, but for further processing and delivering obtained product to consumer, around 7-9 fully employed person is essential). Thus, for the purpose of increasing number of employees and local market competitiveness, state should assist producers of agriculture products, in creating and mastering modern industrial mechanisms. It should be taken into account that modern market requires many small enterprises, producing goods for distribution network (packaging, sterilization, sorting and etc). Such type of enterprises create possibilities to process product on further stages (for instance: farmer delivers apple to packager, who sorts product and provide distribution with commodity fruit, and supply food industry with other products, where from nonstandard fruit you can get: juice, vinegar, calvados, dried fruit, fruit porridge and animal food. Thus, important reserves appear for providing work places.) Therefore, enhancing competitiveness of producers (firms) operating in country should be analyzed as characteristic coming out of world market demand. Development of local market is promotion of such producers of specialized goods and services under national economy, which will offer their product to consumers, instead of foreign high quality goods through competitive conditions. The second important factor to contribute in increasing economic competitiveness represents  firm’s support on the world market, where state should act as a guide and main support for national enterprises. From this point, it’s extremely important to participate in bilateral and multilateral international and interstate agreements, implement own economic initiatives  and conduct right surveillance of enterprises, existing in the country, dislocated on the basis of foreign capital.

Boosting country’s competitiveness is foremost directed to developing local market and participation intensity growth of national markets on international markets. Therefore, coming out of this point, country’s investment activity should be reviewed from conjunctive criteria formed on the world market.  The metric (amount) basis of this should be economic efficiency of each advanced monetary unit on the world market; it is inadmissible to use national monetary unit, GEL with much lesser efficiency than other currency unit efficiency on the world market. Overcoming this difficult problem is qualitative characteristic of state’s honorable economic regulation program. Solving of the noted problem conditions enhancement of large enterprise competitiveness, engaged in the world market, deriving from historically formed and its geopolitical importance in Georgia and what’s more their transformation into organizing leading structural element of internal market. (This problem bears crucial importance for Georgian national economy, as long as it includes large industrial units: Chiatura-Zestafoni industrial and metallurgical enterprises of ore extraction, cement plants of Kaspi and Rustavi, chemical-metallurgical plants of Rustavi, ports of Batumi and Poti, railway and large enterprises of energy generation are not properly appraised by our economic policy; besides we don’t use transport highways that go through Georgia by transnational enterprises appropriately). At the same time, large enterprise units can not respectively participate in country’s cultural life and their attitude towards Georgia’s traditions and social environment organization is so to say, not distinguished by high responsibility that represents violation of UN and other international convention existing on this issue. (Relation system formed over the years in Chiatura Manganum enterprise is classical example of violation of labour conditions of employees, approved in international and civilized countries. Labour norms, holidays, traumas and other relation system is so “Draconic” that it raises associations with early capitalistic labour relations). From this view, competitiveness, the principal feature of country’s economic environment, shall maximally be used in order to represent national economic structure of Georgia as one whole, not just on the basis of criteria defined by the world’s integrating organizations (world bank, WTO, ILO Commodity – material values etc), which is extremely important, but contribute inspite of ownership and technologic particularities, create such systematism which strives towards synergy and allows to effectively implement resource-joining existing at its disposal.

Therefore, economic synergy can be reached, just in global environment within right adaptation and integration conditions, if we maintain phylogenetic basis of country’s development.

4. Real sector development tasks

Real sector represents the basis of Georgia’s national economy. Real sector is unity of technological processing of sectoral diversity of natural resources by a human. Development level of real sector defines country’s development. In addition, country’s real sector is the basis of its sustainable development. Economy of society oriented on sustainable development is based on efficient exploitation of natural resources and advanced ecological technologies. The system should be based on cluster formations and proceeding from its existing structure, large formations participating on international market and participants of local market. Foreign capital participation in form of transnational corporation is principal as well.

Real sector of Georgia’s economy represents, complex, highly different conglomerate of development level. For instance, if we compare: industrial complex of Chiatura-Zestafoni, Isotope plant, chemical-ore factory, Rustavi and Kaspi cement plants to each other we see that, their functioning derives not only from industrial technology development level and features, but also from non-existence of  entire industrial policy in the country.  Hundreds of small enterprises do not fit within united industrial policy, which is created by owners.

In order to better employ Georgia’s current industrial potential, enhance capacity of its real sector and grant synergy effect to the whole economy, differentiated approaches should be implemented towards enterprises, acting on the world market and within internal market. Such attitudes should result from country’s entire industrial policy, in the basis of which will be problems of employment, inflation and economic growth.

Energetics represents ground of real sector. Without developed energetic system it’s impossible to talk about utilization of modern technology achievements and complete satisfaction of population demands. Energetics demands of industry condition steadiness of any macro economic structure basis. From the point of natural resources, Georgia has exceptional energetic base. Oil, gas, charcoal, thermal waters are found here and there is an opportunity to use water, wind, sun and bioenergy. The fact that exploitation of our energy resources is related to the efficiency criteria set in global environment, utilization of hydro resources developed mainly here.  As the World Bank asserts, share of hydro resources in used energy resources (electro energy) here is 92 %.  It can be assumed that Georgia is the only country where hydro power creates electro energy production base.  This results from our geographic and other features and it represents our competitive preference that we should strengthen. Utilization of our river resources enables us to solve other systemic problems:

• As most of hydro resources are located in mountains and rivers here have other meaning, their usage will cause stimulation of mountain’s vital mastering, population retention, development of roads and other infrastructure that will finally contribute in holding population in mountainous and hilly regions and improvement of demographic processes.
• Construction of hydro electric power stations will promote fruitful usage of water resources, regulating system of their utilization will be created and this will enable us to use capacity of the rivers more effectively.
• In terms of power consumption, in case of correctly calculated energetic balance (if our country’s system will be paralleled with neighbor country energy system), we will appear in good conditions, exchange cheap energy on expensive. Peak on basic and thereby improve export import balance. Obtain differentiated income (rent).
• Create criteria of economic efficiency on local market for using sun and wind energy, as well as for employing thermal and hydro energetic resources, geological excavation works and own oil, gas and charcoal resources.
• Creation of opportunities for the use of energy-consuming technologies.
• In addition to direct economic effect, utilizing mountain region creates feasibilities of maintaining cultural-historic diversity and involvement in its entire industrial processes.

From the point of sustainable macro economic development, for efficient functioning of country’s national industrial complex, construction represents extremely important field. Construction, in its essence is multi-profile and technologically non-typical field. It consists of building material industry, construction technology, architecture and etc. thus for denoting the unity of this field term “construction complex” is used frequently. It is tightly linked to country’s natural resource usage issue.  Starting from withdrawal of land parcels from agricultural circulation including, obtaining building materials, construction complex is related to the problems of exploiting natural resources. Construction of roads, road bearing facilities, dams, underground engineering communications, pipeline and other infrastructure objects, military-strategic buildings, industrial and civil, including residential buildings.

Although, large constructions of international and regional significance have ended, by the means of which Georgia earned its geopolitical function in south Caucasus, still there are such projects that require big investments in order to accomplish them. Nowadays material-technical conditions for development of construction complexes exists in Georgia that make us think, country is ready for large constructions. Besides, if large scale construction works do not continue in the country, driving force of this complex, material-technical base will loose its significance and it will take decades for its further restoration. Unfortunately, we have experienced such fact in 90-ies, when construction capacities left country at very low price (In Russia, Turkey) and its further renewal took 10-12 years. Simultaneously we will loose qualified work force that we already lack.

In order to enhance construction complex efficiency it is necessary to elaborate adequate, rational, financial system. Everybody, who is in touch with residential building issues feels (has experienced on oneself), drawbacks existing in this field, which are linked to legislation and financial mechanisms for ensuring effective construction. Therefore, energetic as well as construction bears vital importance for the country’s economic development and this field of real sector together with agriculture and extractive industry defines dynamism of the country’s sustainable development.

Agriculture, forestry and fishing are those fields of industry, where jobs are created, rational organization of the country’s territory takes place, essential food and raw material for the population is created for production processing fields. From this view this field of industry is extremely important, thus we shall immediately start working on agrarian policy document of the country. Not only is the content of the document important but even its creation mechanisms, as participation of interested people (whole Georgia) should be ensured as well. This kind of attitude is conditioned by old-fashioned ideas that still exist in Georgia, as per to it we won’t be able to satisfy our demands with our own food:

• Efforts are needed to address problem solution providing country with products and cast away, harmful prejudice dominating for years that “Georgia can not produce food by its own resources”. Referring to this, we shall overcome the idea that we have abilities to produce just 75% of cereals.
• By the help of international experience and assistance of responsible institutes, by the means of world ongoing inflation and modern financial tools, reach to weaken the reasons causing it in Georgia.
• Create such economic mechanisms, that will enable us to direct country’s financial and other resources allotted in other fields,  in favor of agriculture as agriculture will not flourish without creating synergy effect in entire economy.
• To foresee our historic experience and agricultural and ethnical traits existing in each region. All these shall be based on the newest agricultural achievements, in particular, outcomes of Georgian sciences.

While discussing these general matters, we shall focus on the following problems:

• The climate changes due to the world global warming. Agriculture faces new issues: a) agriculture crop spreading (region, new culture adaptation, establishing agro-technical and technical features) taking into account new land cadastral data; b) revision of agro terms, problems of existing culture cultivation.
• Studying technological conditions of productivity optimization of planting culture and cattle breeding fields and propaganda; in this terms: a) organizing schools; b) creation of demonstrative farm industry; c) using television and other media means.
• Arising from agro-technological conditions in farming and cattle breeding fields, establishing measures of specialized farmer industry and stimulating its spread. This issue is crucial, producing and realization of wealth (production and service market) created by market turnover (property market) of land and other resources in agrarian field, for inter balanced and proportional development.
• Elaboration of new technological conditions for agricultural resources (land parcels, forest ponds, pastures, lakes, and rivers etc ). It is important to develop not only intensification factors but foresee realities resulting from natural climate changes.
• Propaganda of modern means of financing (crediting) farming industries. Consulting with banks and elaboration of new financial tools (insurance, debt obligations and etc) and recommending.
• Legislation revision within the frameworks of new agrarian policy formation and elabouration of essential amendment package (especially to land, forest, marine, construction related laws). Additionally, reflect business features of those employed in rural sites, in labor legislation.
• Revise rules and norms of setting tax on agricultural products during state budget draft discussion (excise on alcohol beverages, meat and tax on imported products). Besides, reserves for local budget formation shall be sought, as the latter indirectly creates social conditions and infrastructure for agriculture development.
• Foreseeing current market conjunction, elaboration of basic parameters of several (minimum two) agro-industrial clusters, projecting mechanisms for realization, coming out of its macro economic importance.
• Promotion of modern agrarian science advances, in particular testing domestic achievements and implementing inculcation mechanisms in practice.

One of the conditions for revival of Georgia’s agriculture is substantial changes of current world agrarian and food conjunctions that is provoked by creation of united distribution network of northern and southern hemispheres. Accordingly, efficiency of existing specializations changes, new market conditions are created and what’s important essentiality of using new knowledge and experience. In this respect, when we consider innovations and future-oriented problems, we shall consider resource potential existing at our disposal in a new manner. For instance, grass cover in our alpine zone is infinite source of food for cattle breeding.  Plenty of hay can be made and sold in natural lawns existing here, however this resource has not drawn proper attention of state till now. It is also worth noting that grass in Georgia was considered as one of the important public industrial resources and attitude to its institutional system bore one substantial importance; (community pastures, transfer paths, common pastures and etc).

5.Monetary Sector

From the view of the world monetary system, each country shall possess one centrally emitted monetary unit, which will be converted to any other currency units, without any restraints and freely transferred within the world monetary system.

Monetary-credit system represents central and integrating unit of functioning within global economic setting of separate national economy in the modern world. On the one hand, monetary credit system of national economy is independent integral structural element of country’s macro economy, and on the other hand, it is the part of the world monetary system, together with other sovereign countries and transnational institutes, it creates world financial architecture. Monetary credit system of the country, as reciprocity resulting from legal independence and peculiarities of industrial ties existing in the country, gains its own systemic features and thus represents one of the main structural parts of the country’s macro economic development. Thus, as father God Holy Spirit lays out his son, as savior of the world, world monetary system, by the help of country’s financial architecture, forms country’s monetary credit system within the heart of economy. Consequently, monetary-credit system of any country is a result of uniqueness characteristic for global economic regularities as well as local national economy and systemic element of interconnection implementation.

1. Importance of National Bank in market economy is extremely important. It is responsible for price stabilization, inflation processes and etc. Georgia is integrated in the monetary system of the world. Satisfies demands of Commodity – material values: one currency unit, free conversion and money transfers, Commodity – material values covers negative (possible) balance of taxation raised from its basis.

1. Commodity – material values requires that all banks shall work with Mundell Fleming model. i.e. take into account the fact that it is impossible at the same time to determine:

• independent monetary-credit policy;
• free money transaction and;
• own independent exchange rate of money;

Accordingly, as long as each member of Commodity – material values is obliged to implement free money transaction, country as it is Georgia has no feasibility to violate it or interpret freely, National Bank faces  option, wether to carry out independent monetary credit policy or independently determine money exchange rate as it can not accomplish both of them simultaneously.

3. National Bank of Georgia refused of its own monetary credit system and became regulating body of Country’s money exchange rate. In fact, it is a big exchange organization of state importance, determining exchange rate itself. Performing this function in a country where dollarization level in money turnover exceeds 60 % and export-import balance is constantly low, is not so simple.

4. Formally, world monetary system is based on market correlation of US Dollars and Euros. Central bank of Europe and Central reserve system of the US do not come out on an open market, therefore their exchange rate is not regulated as per to conjunctive situation ongoing towards other currency units, thus correlation formed between them is maximally objective. General proportion created by interrelation of dollars and Euros on world money market becomes guidance for central banks of all countries. Central banks come out on an open market and regulate national monetary unit exchange rate dynamics, from conjunctive points.

5. Central banks in whole world, especially in developing and other high dollarization countries, while determining money exchange rate widely use targeting (direct target identification) method. This method is considered to be firstly used in New Zealand, but as per to the opinion spread in economic literature we used it in Georgia in 1995-1997 years, earlier than New Zealander would grant any importance. This had its reasons, at that time GEL was strictly linked to US Dollars and any change was controlled by Commodity – material values. Thus, Georgian financiers were trying to consider factually existed goods turnover volume when determining exchange rate e.g. GEL with Turkmenistan Manat parity, to other currency units. Therefore, if we look at GEL exchange rate issued by Georgia’s national bank, towards other country’s currency units, they don’t always correspond to their cross rate. For instance: Azerbaijanian Manat, Russian Rouble, Turkish Lira and so on. It’s noteworthy that in 1995-1997 Georgian know-how was lost and utilization of targeting method has restarted by 2000 year. It is unfortunate that our financiers use noted method on the grounds of technical and not fundamental analysis.

6. Apart from the flaws existing in targeting, National Bank can not properly control money circulation process. Two aspects are especially important in this direction:

• Money being in circulation is not completely aggregated. National Bank does (can) neither allot independently nor control remittances and their impact on GEL exchange rate. Money in transaction state and other money deposits of non credit institutions are united in M3 aggregate and its expecting impact on GEL exchange rate is not properly foreseen.
• Almost 80 % of Bank’s deposit base consists of one month deposits, or salaries of population and money income equivalent to them that banks use as short term credit resource.

7. Due to the fact that National Bank can not independently accomplish monetary-credit policy (can not regulate credit interest rate), its influence on banks bears limited character. It does not study bank activity on the basis of CAMEL ratio and use its contracted version CAEL. This implies that efficiency of bank management is not under its surveillance and is embodied just by control of separate norms. (Capital volume, asset quality, profitability and liquidity).

8. Due to such weak control, banks work with clients as credit institutions and enjoy state privileges existing for depository institutions. There are cases when they use their own resources by the help of mediatory institutions (micro financial organizations).  Because of this and reasons set forth in article 6, real credit market does not exist in Georgia and comes out on the scene usury relations with suitable social consequences.

9. Analysis of fixed capital of acting bank in Georgia shows that majority of them presents KVZ (კვზი) mediatory financial institutions. For this reason, efficiency criteria of its activity is not formed on our domestic market, bank management is isolated from interests of real owners, and exposes interests of mediatory organizations, consequently liquidity trap is created that negatively impacts on the country’s real sector.

Hence, we can conclude that transformation of Georgia’s banking sector is inevitable task, earlier we start the process sooner we get desirable result. Transformation shall start from national bank.

The main feature that finances differ from money is its attitude towards owner. When money starts action without owners will it represents finances. People’s pecuniary liability, performance of which is not related to their concrete decisions is financial system. Financial system is the form of development of economic processes, by the means of financial system the entire industrial cycle of monetary relations, between participants are formed. It produces Gross Domestic Product, distribution and redistribution. As per to their origin centralized and decentralized finances are differed. Besides, there is much more flexible classification, according to which finances of: industrial, household farms, state and municipal are differentiated.

Development level of macro economy relies on efficiency of financial system in the country. Modern global world turns national financial system into one integral element of entire world architecture. Proceeding from this, national monetary-credit system, as well as national financial system shall be considered within the world monetary dynamism (evolution). From this point, national financial system is the main regulating unit, which maintains originality of economy within free market conditions and in case of necessity neutralizes undesired affects of global regularities on macro economic system.

State budget presents central unit of country’s financial system. Thus it is considered that state budget is country’s “main financial document” (book). Problem issues related to budget can not stand any critics in Georgia:

• State budget definition is vulgarized
• local budget formation resources factually do not exist
• there are no coordinated budgetary and tax codes
• organic law on budget represents integral part of punitive system of disciplined society
• Pension provision resources and social security problems of people are not separated and are linked to state budget
• In separate cases it is direct source of creating market monopoly formations

Such organization of state budget and negligent attitude towards budgeting process in the country is the result of non efficient expenditure of local investment resources and undeveloped capital market. Transformations in this field are rather simply accomplishable, but unfortunately new government losses time and energy and is not able to achieve visible results.

6. Labour and Social Protection

Necessary condition for transformation of labour and social protection system, is its reformation. But reform, which implies creation-formation of new social relations; it is important to transform these systems that means changes of their target. Therefore, it is crucial to replace existing ruling forms by modern adequate forms (reform) suitable for situation, but more importantly is to set right targets before these systems and selection of personnel, who will themselves, be bearer of this new targets.

Open economic system is characterized by free movement of capital, money and workforce within today’s world, that’s why discussion of labour and social protection issues shall be taking place on the basis of global regularities. From this view, it is important to guide with regulations elaborated by international labor organization. Also we will depend on rich international experience in social protection field.

Human and social capital dynamism, in any country, counts on local peculiarities and capabilities of development. In this case we deal with limited amount of resources that can be used alternatively. Thus, choice we make directed to work force development, labour insurance and social protection shall entirely be based on capabilities and development regularities of the country. As long as this field is not approbation place for untested logical constructions, political decisions shall be made as per to local market development capabilities.

Arriving from, the aforementioned methodological conditions, undeniable moral principles that, on the one hand, labor organization and insurance, on the other hand social protection issues of people, is based on completely diverse moral imperatives, labour pension- on justice, social-on the public charity, it is essential, to institutionally sharply separate each other, problems of labor protection and social services, practice of their study, realization forms and making political decisions in these fields.

Such transformations imply preparatory period that is possible to accomplish on existing institutional base, assuming to prepare for the next year, whole legislative and normative package, select personnel and elaborate new mechanisms for functioning of new institutes.

Necessity of arranging labour relations on modern level requires sharply distinguished and understandable policy in this field.  It is important to expose country’s existing cultural-historical characteristics within labour relation issues, which shall be brought in correspondence with recommendations of UN and International Labour Organization. We shall also have practical use of such fundamental importance norms of ILO as: 1700 hours work in a year, normal working day (the latter is especially important in case of recording employed people and determining work place), minimum labor salary, public holiday quantity and etc. From this point, functional representative of government (Ministry of labour, health and social affairs) together with other structural divisions of authority, shall elaborate employment support system ( workforce training, retraining, qualification  improvement, protection from labor trauma and so on.). State policy of workforce labour insurance and its implementation mechanisms shall be one of the defining integral parts.

Pension fund (s) represent one of the most important and universally approved form of labour insurance. As we have noted above, time has come that pension funds shall be created in Georgia (separate from social service system). Herewith, based on historic experience we consider reasonable to create united non budgetary state pension fund (hereinafter: pension fund).

State Pension Fund of Georgia shall represent strong financial mediator among state, employees and industrial field. It shall have legal right to:

• record other assets (budgetary transfers and voluntary deposits of employees) in its accountancy as liabilities;

• Keep accounts of each client independently (Giro accounts) and manage as per to its view;

• Charge accumulated funds with interest rate, which will be more than bank’s average deposit interest rate and less than credit interest rate

Pension fund, will act within macroeconomic setting of labour money and capital market. Financial system of the country (bank and budgetary), where acting financial tools (state debt obligations, banking system of money circulation) and institutes (tax service, money transfer system) represent functioning conditions of the mentioned fund. As per to it,fund will become one of the strong integrators of united market and as domestic market mechanism, ensures proper (negative) feedback, in order to grant desirable direction to global market impact on development of our economic processes.

We have already reviewed general methodological reasons of separation of pension fund, from united social service of state, but following circumstances appear as direct causes of their creation:

• Necessity of Independent state institute (financial mechanism) of labour insurance, as country’s principal value;

• Reciprocal incompatibility of financial systems and mechanisms, providing insurance of labour activity and social protection;

• Resulting from the demands of insurance market development, in complicated actual situation of global setting, necessity to improve labor normative base acting in the country and inevitability of vocational trainings acting in the mentioned field.

Pension fund source shall include mandatory pension payments calculated in proportion to remuneration of employees, amount of rate and mobilization rules of which shall be established by the parliament of the country and voluntary systematic deposits of employees, the amount of which will be defined as per to the relations between insurance object and fund.

Pension fund shall function by three column system;

• According to expenditure system (first column), implement provision of retiree-age population with universal pension source of which will be mandatory pension payment.

• Carry-out efficient service of pension deposits on the basis of  voluntary, accumulation system (second column), the source of which will be voluntary pension payments.

• Mixed system (accumulating and expenditure system together) the source of which will be pension and voluntary payment.

Pension fund, orginized in such way will be the main improvement factor of country’s investment setting. Its operation on capital market (market of defensive securities, reserve stock of budget deficiency, hastening money circulation) will stipulate activation of investment activity.

Pension fund, its organization on the basis of expenditure and accumulation systems, will become guarantor of accountancy regulation and exposes in a number of fields(construction, hotels and restaurants business and etc) and bring existing shadow incomes into budgetary turnover. i.e. will promote increasing salary and labor market transparency.

Mandatory pension payments shall be the source of pension fund expenditure system.  Funds gained via accumulation of payments shall cover the amount of pension that shall be disbursed. Pension payment in Georgia nowadays is revoked, accordingly GEL 1.146700 is allotted for 682 900 retirees from the state budget. This amount is not the margin, as the government plans to raise pensions; but nevertheless, pension payment shall neither enhance tax