Post-Soviet Business Clans in Georgia: Irrelevant Anachronisms or Serious Impediments to Georgia's Economic Development?

Abstract

Since the collapse of the Soviet Union, clandestine Russian-Georgian business clans have plagued the Georgian economy. The extent of these deeply entrenched business groups, directly connected with the political elite in the post-Soviet Georgia, have largely contributed to the generational regression of the Georgian economic development, and engaged in the war of attrition with the Georgian state and society. Its negative impact comprises a large part of the state-societal conflict in Georgian politics to this day. Although it is outside the scope of this article to conduct economic analyses for discovering a possible harm done to Georgia’s economy as a result of clan-based, informal business networks, it aims to elucidate the segments of the Georgian economy that might be operating in direct contradiction to the expectations of Western economic reforms and traditional principles of free markets, competitiveness, market based price formations, productivity and efficiency. This should raise a hypothetical question, that if majority of key Georgian sectors operate without regard to improving their transparency, efficiency and productivity, will the Georgian economy become compatible with the complex standards of European and Western markets? Will it exhibit synergies in which it can demonstrate profitability in the open market? Importantly, in case there is an abundance of such businesses in Georgia, should they be protected, because of their past, and possibly present privileged, murky relations with the government, or be exposed to open market competition, where they could demonstrate their ability to raise capital independently in global capital markets?These questions are not new in Georgia. Many experts have raised these points in various capacities in reaction to rampant corruption of the early nineties, the effects of which are felt today. Understandably, regaining the trust has become a generational issue. Moreover, these and other issues related to extreme favoritism and plutocratic governance in Georgia, remain to be one of the many heated political issues between the current government of the Georgian Dream Coalition (GD) and the society, to this day. Although many successful reforms have been implemented to tackle the problem of lack of social confidence in the business sector in Georgia, significant lapses in the system still remain. This article argues that one of such anomalies exists in the fertilizer production sector in Georgia.