Smaller Government: Georgia Shows It’s Achievable

To any true libertarian, Government regulation in Australia feels increasingly suffocating. This feeling is backed by statistics. According to the Parliamentary Education office the Australian Government added an average of 109 new laws every year from 1901 to 2013. Since 2013, that increased to 139 new laws per year.

Typically, when the Government is criticised for its interference in our private lives and businesses, it justifies this by drawing a comparison with European countries. Sure, Australia has unsustainable state and federal deficits, business closures exceed new businesses, there is increasing crime and homelessness, a housing affordability and supply crisis, plus a plethora of worsening social and economic statistics. But some of our taxes are lower than Germany, we are not as broke as Greece, and citizens are freer than in North Korea. Therefore, apparently, everything is fantastic.

The Government has a point, though. Looking at the nations of the G20, most are facing far bigger problems than Australia, and none are moving in a libertarian direction. All are increasing taxation, expanding the size and scope of the public sector, and raising the difficulty of operating a private business. There are almost no recent examples of a country achieving superior outcomes by moving in the opposite direction; except, perhaps, for the small nation of Georgia.

… first task was to cull the regulation that was facilitating the widespread corruption and strangling the Georgian economy.

Georgia was the birthplace of Joseph Stalin and formerly part of the Soviet Union. A decade after the Soviet Union’s collapse, it was a basket case. The government was insolvent; the country was rife with corruption, crime and poverty; the police force was essentially a mafioso street gang; infrastructure was crumbling; utilities such as power and water only functioned occasionally.

In 2003 there was a revolution and Mikhail Saakashvili was elected to the presidency. The usual gaggle of globalist socialist technocrats showered Saakashvili with the usual ruinous recommendations straight from the book ‘Confessions of an Economic Hitman’: take out impossibly huge IMF loans, increase taxation and impose ruthless austerity.

Shockingly, Saakashvili declined the loans and socialistc advice; incurring ridicule and disapproval from the EU, US and IMF. Instead, he immediately cut taxes by 70%.

As a result, rather than deepening the country’s bankruptcy – as predicted by the IMF – tax revenue doubled in just the first year. Over Saakashvili’s two terms, the economy went on to quadruple in size while tax revenue increased 1200% and poverty decreased by 75%.

Saakashvili appointed a committed, renowned libertarian, Kakha Bendukidze, as the Minister of Economy and Reform Coordination. Bendukidze was no academic bureaucrat; he was a self-made multi-centi-millionaire. He had a degree in biology and made his fortune creating a chemical manufacturing empire in Russia.

Bendukidze’s first task was to cull the regulation that was facilitating the widespread corruption and strangling the Georgian economy. The head of every government agency was forced to justify their existence to him, like contestants on the TV show, Shark Tank. Bendukidze had authority to eliminate any agency on the spot.

Among the first of the Agencies to be eliminated was the police force. The force was determined to be so corrupt, and so distrusted by the populace, that the only solution was to fire everyone. So that is what they did. Somehow they managed to quickly form a new police force. The whole exercise earned the trust and respect of citizens, so the streets became safe. Within just three years Georgia was ranked among the top countries in the world for personal safety.

Shockingly, Saakashvili declined the loans and socialistc advice; incurring ridicule and disapproval from the EU, US and IMF. Instead, he immediately cut taxes by 70%.

In his first two months, Bendukidze slashed approximately 70% of regulations and the majority of government agencies. He and Saakashvili also instituted a policy that no new regulation could be added unless two existing regulations were repealed. In total they achieved a 90% reduction in regulations, resulting in Georgia being recognised as the top reforming country in the world by the World Bank, and leaping from 137th to 8th in the Ease of Doing Business rankings. It also went from ranking among the most corrupt countries in Europe, to 3rd least corrupt.

They not only cut tax rates; they cut the tax code down to just six taxes, and amended the constitution so that the only way to increase taxation was via a referendum. This gave confidence to the international investment community that Georgia’s reforms were stable and reliable, resulting in a quadrupling of the rate of international investment.

Georgia represents a compelling case study in contemporary politics and economics. It was brought to ruin by Marxism, then revived by the unapologetic application of libertarian principles and free market capitalism.