President Mikheil Saakashvili begins his second term facing challenges he has not encountered previously as head of state. Georgians want better security, in both national and economic terms. The recent elections revealed that 77 percent of Georgians seek NATO membership for their country. A slightly larger number, nearly 80 percent, called for early Spring elections to fix internal problems, notably the economy, rejecting the government’s preferred election schedule. Bold steps are needed to address national security concerns and economic discontent. The government has treated national and economic security as distinct and separate; the question is if this strategy is viable at present.

BACKGROUND: An important conclusion from the past months of instability in Georgia is that Georgia’s quest for national security is being undermined by its lack of economic security. The two concepts are inextricably linked in most states, given that economic security lies at the basis for a state’s capacity to defend itself. But it is nowhere more true than in the fledgling Georgian democracy, which is under extreme pressure both externally and internally.

A number of political missteps at home have heightened societal dissent that is often articulated in economic terms. Meanwhile, Russia’s efforts to destabilize Georgia through various economic sanctions and stratagems – including a two-year trade embargo on all Georgian products in the Russian Federation – add an external irritant to Georgia’s efforts to create a sustainable economic platform that will allow reforms to take place at home and new foreign policy initiatives to be pursued abroad.

A cacophony of voices in Georgia today, including some within the government, attribute growing social unrest in Georgia to the economic dislocations caused by the Saakashvili administration’s preference of radical free-market reforms during the last four years. It is incontestable that a severe reduction in the number of state employees intensified an already painful unemployment situation, and that many of those affected were not ready for dramatic change of this magnitude, given the weakness of the social safety net.  But it is also the case that many other societies have weathered similar reductions of the state sector and still managed to stimulate prosperity across a wider cross-section of society. The Georgian government did not help its case by failing to implement an effective communications strategy to advertise opportunities elsewhere in the economy, or to explain the reforms as essential measures to build a more robust Georgian economy overall from which more citizens would benefit.

In any event, such a strategy probably would have had a limited impact, as Georgia’s private sector still lacks sufficient capital and management expertise to expand dramatically and, hence, create large numbers of attractive new jobs. The diffusion of Western management culture, although increasingly visible, has remained slow. Entrepreneurs are constrained by the absence of fundamental economic essentials, for example the government’s failure to enact judiciary reforms that would fully guarantee property rights and transparency. A larger flow of foreign direct investments in different industries could make a substantial difference, but so far the most significant investment from the outside is speculation in real estate.

During the election campaign, almost all presidential candidates made substantial promises to increase social spending. Election rhetoric supported the assumption that by increasing pensions and social benefits Georgia could find its way out of its current economic problems. This approach is a long shot. An understanding of linkages between free market economics, entrepreneurial activity, sustainable employment, and, hence, internal and external stability is very thin across Georgian society or, for that matter, within the Georgian government.

IMPLICATIONS: In reality, the key problems of Georgia’s economy are structural and cultural. The decision-making process in Georgia is over-personalized and under-institutionalized. A few top people make all important economic decisions. Frequent personnel changes at the top of the government and in ministries leave few opportunities for building institutions or implanting institutional memory. To date, the government has demonstrated little interest in strengthening important institutions and implement an effective interagency process. In fact, in Georgia no interagency process of note exists. The government has sought to strengthen this in the national security field by boosting the office of the national security council, but in other sectors, especially the economy, better coordination is lacking.

The government has made efforts to ease and adjust some regulations, and it has been praised by the World Bank for this. However, actions have not measured up to the letter or spirit of new rules or inflated rhetoric. Despite efforts to rebuild infrastructure, including real successes in the energy business and power generation, there are still limited incentives for modern, knowledge-based industries to move to or develop in Georgia. Failing to create a less personalized, deeply institutionalized economic vision complete with transparent and modern processes will have important implications for national security planning. The government’s ambitious plans for joining NATO and Europe are unlikely to be achieved without putting in place a strong economic foundation, as both NATO and Europe will want to see much more evidence that Georgia can pull its own economic wagon and not burden its future partners with its economic problems.

CONCLUSIONS: By its previous efforts, the Georgian leadership managed to attract the attention of the world’s financial institutions and some private investors. Implementing correct policies could transform this attention into tangible economic results – which would be important for internal stability, but also for the restoration of Georgia’s territorial integrity. A free and Innovative business environment will attract innovative businesses and creative individuals from all over the world.

Georgia badly needs an integrated and comprehensive national economic strategy that connects to a national security strategy. For Georgia, economic security and national security should be seen as part of one process, rather than two parallel processes that may or may not converge. A reshuffled National Security Council would be the logical place to articulate a holistic strategy. Asking the question what Georgia’s security goals are, and how economic planning and processes will affect them, would be a good place to start.

AUTHORS’ BIOS: S. Enders Wimbush is Senior Fellow at Hudson Institute and Director of its Center for Future Security Strategies.  Mamuka Tsereteli is the Executive Director of the America-Georgia Business Council and a Professor at the School of International Service at American University in Washington D.C.