If and when Georgia starts accession negotiations with the EU, it will have to carry out substantial reforms, which will require a complex understanding of how best to prepare the country for the competitive EU market.
Despite common belief, economics is far from a precise science. It is not value-free. Hence, there are multiple schools of economics, each offering various (equally interesting) approaches to the field.
However, mainstream economics is today mainly linked with one school of economic thought known as neoclassical economics, which, from a scientific and mathematical standpoint, acts as the backbone for the prevailing public policy approach, also known as neoliberalism.
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Neoclassical economics emerged in the 1900s, but its concepts gained widespread acceptance in the 1970s, as Keynesianism lost its popularity due to its inability to tackle stagflation.
Soon enough, neoclassicism gained significant influence and became the basis for the economic policy of nations and multilateral financial institutions. Neoclassical economics was used to justify deregulation policies, as it sees individuals as perfectly selfish and rational, able to create perfect markets and act in their self-interest. The theory also justified trade liberalisation, as under its standard assumptions, free trade produces a tendency towards “factor-price equalisation”, leading to enhanced efficiency and lower costs.
The main pillars of the Washington Consensus—trade liberalisation, deregulation and privatisation—introduced in the 1980s, are closely aligned with neoclassical ideas. Following these principles, the Washington Consensus prescribed free market economic policies to developing countries.
Market reforms in the post-Soviet world
After the breakup of the Soviet Union, the Washington Consensus was also applied to countries transitioning from central planning to market economies. The so-called “shock therapists’” methods were greatly shaped by the prevailing neoclassical theory, advocating for price liberalisation, rapid privatisation, and macroeconomic stabilisation by closing fiscal deficits. These policies did not deliver promised results, but instead led to the downturn of output and increased inequality.
It is no coincidence that neoclassical ideas found much traction in post-communist countries, which had lived under and witnessed the failings of communist dominance for decades. By deepening the existing fear of socialism, Western neoclassicists managed to win the hearts and minds of local political elites carrying out the “shock therapy” reforms.
The depoliticisation of economics by reducing it to mathematical modeling only furthered this cause and gave scientific credibility to notable neoliberal ideas such as deregulation, trade liberalisation, flexible labour markets, and small government.
This way, the dissolution of the Soviet Union and discreditation of its economic and political positions led to the mistaken perception of the supremacy of neoclassical/neoliberal ideas.
The need for pluralist economic policymaking in Georgia
The country of Georgia was no exception to this global trend. International institutions (the World Bank, IMF) started backing the implementation of Washington Consensus policies in post-communist Georgia. Their role became that much palpable with subsequent conditioning of international assistance programmes (either in monetary form or institutional support) upon the completion of market reforms.
This way, the origination of what many have dubbed the “libertarian revolution” in Georgia in 2003 was no coincidence. While neoliberal reforms in Georgia trace their roots to the 1990s, the post-Rose Revolution policies resulted in the institutionalisation of neoliberalism through large-scale privatisation of public resources, continued deindustrialisation, tax minimisation, massive price and trade liberalisation, fiscal space limitation, and the minimisation of the state’s role in the provision of social services.
While efforts to impose financial order, eradicate petty corruption, and conduct an effective fiscal policy were somewhat successful at achieving macroeconomic stability, Georgia has struggled to diversify its economy, to move away from a non-productive, consumerist model, and to alleviate poverty, tackle unemployment, and reduce inequality.
Meantime, current decision-makers have yet to demonstrate the necessary political will to reassess past policies for addressing ongoing challenges. This may be because many of them belong to the country’s economic elite and may have a stake in maintaining the current economic order. Besides, with the ongoing political polarisation not being grounded in ideological differences, Georgian politics is largely devoid of healthy intellectual debates on alternative policy vision.
Notably, some progress has still been achieved. With the 2014 signing of the Association Agreement with the EU and the entry into force of the Deep and Comprehensive Free Trade Area, Georgia has had to re-introduce some standards and regulations (such as the reinstatement of the Labour Inspection Service in 2015, and the introduction of food safety regulations) done away in the early 2000s.
If and when Georgia starts accession negotiations with the EU as a candidate for membership, it will have to carry out far more substantial reforms, which will require a complex understanding of how to best prepare the country for entering the competitive EU market.
Consequently, there are three primary reasons why there may be an emerging need to diversify our knowledge of economics: (1) Georgia is an import-dependent, non-productive and non-diverse economy, facing poverty, unemployment and growing inequality; (2) there is little political will to inspire meaningful change in the existing system; (3) the continued institutional rapprochement with the EU may require a more pluralist, democratic and inclusive approach to economic policymaking in the coming future. In order to rethink the way we do economics, however, we must first rethink the way we teach economics.
A flea market in Georgia’s capital, Tbilisi
Rethinking economics education in Georgia
The post-2003 economic reforms naturally found their reflection in Georgia’s education system. Soon enough, economic history was removed from undergraduate economics programmes due to changing policy priorities in education.
A 2022 study of the “design and structure” of undergraduate economics curricula at Georgian public and private universities found that nowadays economics education in Georgia principally centres around teaching neoclassical thought, with Austrian, Institutional, Developmental, Post-Keynesian, and Marxist schools being “largely absent”.
The primary textbook used in introductory economics classes is Gregory Mankiw’s Principles of Economics, criticised for overlooking “topics such as inequality, development, and power imbalances”.[ix] This way, students learn little about the complexities of the economic challenges relevant to Georgia and the various ways of overcoming them.
Further, seminal works from various economics schools and related fields (sociology, political economy, anthropology) remain untranslated in Georgian, making a more pluralist, interdisciplinary learning less accessible for Georgian economics students and future policymakers. One can argue this results in a vicious cycle, in which the ideological signals emanating from state-level policies trickle down to higher level institutions, while economics graduates end up only reinforcing the existing status quo in economic policymaking once they advance to political positions.
It can be argued that teaching economics as a social science, encompassing various schools of thought (beyond the neoclassical) and approaches (beyond the mathematical) has the potential to foster stronger critical thinking skills, helping students identify the political nature of economics, as well as the contradictions and debates existing within the field.
Such an approach to the study of economics can form the basis for a critical and multifaceted analysis of the economic challenges facing the country and the rethinking of the methods for tackling them.
In addition, making pluralist economic thought accessible to students from related disciplines, non-economists, and the broader public can prove crucial for fostering intellectual public debate on economic policy, civic engagement, and informed voting. Inspiring change in the teaching of economics is bound to have an effect on the doing of economics, rendering economic policymaking a more democratic, inclusive, and informed process.
The persistent poverty, unemployment, and inequality, lack of political will to institute meaningful reform, and continued rapprochement with EU institutions will require shifting our deeply ingrained perspective on how economic development is to be achieved, and Georgia will need a pluralist vision to design and guide this process.
This opinion editorial was co-authored by Nato Balavadze, an MSc student in Development Studies at the London School of Economics and co-founder of Rethinking Economics Georgia.
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