„Citius, Altius, Fortius”Every four year, the political elite rally their forces, experience, financial resources and support base and start their race for the gold medal of Georgian politics: a parliamentary mandate. The competitors are active politicians who will jump any hurdle to prove their concern for fellow citizens and country. For some more than others, it will be a struggle just to cross the finish line.
This year, the gold medal is challenged by two clear-cut favorites: the United National Movement and the Bidzina Ivanishvili – Georgian Dream coalition. The Christian-Democratic Movement, New Rights and Labor Party also have their eyes on the prize.
The election campaign is conducted like any high-stakes sporting event – with strategies and tactics. Popular support is critical.
In the run-up to the major event, ratings of political parties depend more on fan loyalty than on how the game is played. It is logical for the game plan to incorporate any and all plays likely to attract a broad fan base.
A party’s odds of victory can fluctuate wildly depending on what people think of that party’s prospects for future success. To stay in the running, political parties have to incorporate campaign promises directly responsive to voter demands.
For political players, the cardinal rule is “not what I say but what they hear.”
For voters, how political parties score in popularity should be far less important than understanding the strengths and weaknesses of political party programs in order to make the right call. As Orson Welles once famously noted: “Popularity should be no scale for the election of politicians. If it would depend on popularity, Donald Duck and The Muppets would take seats in the Senate.”
Quite often, though, the personal charisma of the political leader and the “relatability” of the party’s political platform largely determine a political team’s margin of victory in the Parliament.
Aaron Director, the late University of Chicago professor, studied how political parties tailor their programs to the demands of the majority. That principle, known as “Director’s Law,” is reflected in the political manifesto of just about every political party. Because the middle class constitutes a significant segment of voters, its support is essential to obtain a mandate. So, naturally, political partiesspare no effort to ensure their programs are designed to benefit mostly the middle class.
Just because a program resonates with a targeted voter bloc does not mean that program is necessarily good for the larger population. Just because “free” education provided by the government has more popular support than education-sector privatization does not make it the optimal choice for the government.
Studies conducted by Professor Director show that middle-class domination in pursuing political interests harms both upper- and lower-income households. Voters demand that political parties deliver on their campaign promises and that requires money. To raise that money for the state budget, the government must tax the entire population at a higher rate – either directly or indirectly. Higher taxes most severely encumber low-income families, which on average have to pay twenty-percent more of their income just to maintain the same standard of living, according to Director’s estimates. Higher-income taxpayers are also burdened by paying higher taxes to support government programs demanded by the dominant middle class.
Low- and high-income citizens are the ones who end up paying most of what it costs the government to provide middle-class benefits for “free” or “as a present.” The middle class voting bloc thus is benefited largely at the expense of all other citizens.
“Free” is Always At Some Else’s Expense!
The 2012 Parliamentary election follows the usual game plan. Once again, the manifestos of the political parties push the concept ofbenefits that are “free” (free insurance, free education).
Pushed to the sidelines are the adage that “there is no free meal” and the reality that everything comes at a price. The question for voters to ask is not “How much?” but “Who pays?” Most of the cost of so-called “free” government programs is covered every year by successful businesses and high-income citizens in the form of higher income and profit taxes. Only after those taxes are paid to the state budget is the government able to provide free insurance, affordable education, irrigation systems and public infrastructure.
Agrarian vs. Productive Georgia
One of the most popular political pledges this year is a “strong village,” or the “development” of agribusiness. The political manifestos of the United National Movement, the Georgian Dream and the New Rights parties all emphasize problems in the agricultural sector and promise to solve those problems in their own way.
Building a strong village is a key demand of voters outside the country’s urban centers. Almost half (47.1%) of Georgia’s population lives in villages and constitutes a significant electoral segment.
That explains why the parties in this campaign race have all rushed forward to impress village dwellers. In their haste, though, they have paid scant attention to the long-term effects or the likely side effects of their promised programs.
The United National Movement intends to spend four billion GEL on the agricultural sector in the next four years, commencing right after the elections. That amount would be used to construct agricultural processing enterprises, install drainage and irrigation systems, improve road infrastructure and purchase agricultural equipment.
The Georgian Dream political coalition has not lagged behind in its promises to promote local production and restrict the import of food products. Similar to the National Movement, the Georgian Dream political manifesto focuses on modernizing agribusiness. The opposition coalition also has pledged to set up a one-billion-lari fund for the development of agriculture. That money from the state budget would be used to subsidize agricultural production and to improve living conditions in rural areas.
If the Georgian Dream coalition wins the elections, it will be expected to make good on its expensive campaign promises. Even if the agricultural sector does not really need a one-billion-lari infusion from the government, that amount would be allocated from the state budget anyway. Most of that money would likely end up being redistributed among less-profitable industries with dim prospects for any return on the investment.
In addition to being an inefficient investment, the promised public expenditure would impose other costs on the population. People would have to do without, for example, an improved infrastructure because the government would instead divert one-billion laris to the agricultural sector – regardless of whether it is needed there or not.
No less damaging would be fulfillment of campaign promises to restrict imports in the name of protectionism. Products are imported only if the local market cannot meet existing demand or if the imported products cost much less than locally produced ones. In either case, it is the consumer who ultimately loses. Restricting imports would lead to a shortage of commodities which would push prices up and, eventually, increase the cost of the consumer basket. The absence of competition would virtually guarantee the deterioration of the quality of production – with no rivals, local producers would lack any incentive to do better or vie to be the market leader.
Besides the National Movement and the Georgian Dream, the New Rights party also has made agricultural development a campaign priority. The basic principles of the New Rights political program do not differ significantly from those of its political rivals: a modernized agrarian sector and improved living conditions for farmers.
It is paradoxical but true that the government, by so lavishly subsidizing the agrarian sector, would actually establish itself as a competitor of private agribusiness.
Consider the political manifesto of the National Movement: The ruling party promises its supporters that it will bring hundreds of tractors and other agricultural equipment into the regions. Private distributors engaged in the rental of agricultural equipment would thus be pushed out of the regional market. A private distributor simply could not compete with the state, which is not profit-driven and therefore able to supply customers with far cheaper products and services. Under free market principles, the price and choice of products are regulated by supply and demand. State interference would render those variables effectively inoperable.
Since the state is not driven by profit incentive, it is oblivious to market signals in the agricultural sector. Profit-oriented private producers, on the other hand, strive to offer an optimal package of services to meet the needs of farmers with prices regulated in accordance with production output. Profits realized by those businesses incentivize other entrepreneurs to enter the market, eventually pushing down prices and improving the overall quality of services. Suppliers offering the best options to farmers stay in the market. With the entry of the state into that market, private companies lose their competitive edge and face extinction. Even though the aim of the government is to assist farmers, state interference negatively affects private trade in the agricultural sector.
(Non-)Optimal Program of Employment
The economic welfare of the country is measured first by its Gross Domestic Product (GDP) and then by its level of employment. So politicians naturally promise to reduce unemployment. For them, “People + Jobs = Happy Voters” is seen as a winning formula.
Promising new employment programs has traditionally been a well-tested way for a political party to gain traction on the playing field. And this year is no different.
Right out of the starting block, the United National Movement established the Ministry of Employment to register job-seekers and to assist them in finding jobs and planning their future career directions.
Not far behind was the Georgian Dream coalition in pushing registration of the unemployed and creation of an information bank as a sure-fired solution to the problem.Both “solutions” miss the mark. The most common causes of unemployment among Georgians are their lack of qualifications for higher-paying jobs, their lack of ambition to acquire the necessary, and their refusal to perform low-income jobs for which they are qualified. That lack of motivation cannot be tackled with the creation of employment agencies – whether it is a Ministry of Employment or an information bank. No matter how much money the state spends, a certain category of people will never be sufficiently motivated to accept a low-salary position, even temporarily. The problem is not a shortage of jobs; it is the attitude of the job seekers. Establishing a state entity for employment or otherwise making the state responsible for finding people jobs is not going to motivate anyone to do what they need to do to secure appropriate employment. The political proposals will not solve the unemployment problem.
Motivated people with financial means are willing to undertake professional retraining at their own expense, to make an investment in their professional development. Those people, as a rule, usually succeed in finding jobs in a relatively short period of time. When people decide for themselves what steps to take toward their professional development, they choose options which are most advantageous at that given time. Motivated people who, for financial reasons, cannot pay for professional retraining are willing to take any job. Many try to find business opportunities with prospects for development. These people not only change their own lives in a positive direction, they fuel the country’s economy too. They are productive and, when needed, daring, and are often the creators of small- and medium-size business. In many cases, yields prove higher than the risk.
When people wait for the state to find them jobs, they become less daring and more likely to end up depending on state allowances.
The United National Movement envisages a one-thousand-lari-voucher program for those willing to undergo professional retraining. That targeted use of money might initially seem like a good idea, but, as with any other artificially created incentive, the voucher system will lead to an inefficient redistribution of human resources. With a “free” retraining alternative available, many people are likely to undertake professional retraining that either they don’t need or that is not needed. Budget resources will be spent on people whose retraining will produce no tangible benefit and the labor market will become oversaturated with people retrained in subsidized professions. It is virtually impossible to determine beforehand how much professional retraining any given citizen will actually require at any given time. Under free market principles, that need is dictated by the desire of an individual to invest in his/her own future profession, depending on the anticipated return the investment will yield. That incentive is missing with state subsidies. Far more people register in vocational educational institutions than would otherwise be the case. The government could redirect those funds differently and perform a job more appropriate for the state.
The Georgian Dream advocates changing the Labor Code to create a more secure working environment for employed people. The primary result of its proposed initiative would be to provide more protection for employees and place more restrictions on employers. For example, the coalition proposes a complicated procedure which employers would have to follow before they could dismiss any person in their employ. Amending the Labor Code in the way advocated by the Georgian Dream would disadvantage both the employed and their employers. Hiring new employees would also become a protracted process, delaying or even discouraging the opening of new job opportunities. The minimum wage would also rise, which very possibly could lead to more job cuts than job openings.
Universal Health Care
Yet another nicely-packaged election promise is health care reform. Universal health care requires the state to subsidize health insurance, either at no cost or at a minimal price, to ensure that the entire population receives affordable medical services. In so doing, the state protects the right of every person to medical care and a healthy life, regardless of income level. At least that’s the promise.
In practice, universal health care does not function quite as perfectly as politicians promise. State-subsidized insurance policies compete on the market with products developed by private insurance companies, which are regulated by market demand and costs.
Services offered at a cheaper price than they actually cost – as is the case when they are subsidized by the state – erode the quality of services for state-insured patients as well as for premium insurance policy holders.
With state-subsidized policies, an excessively large number of newly insured patients might be inclined to visit clinics too often and too often unnecessarily, thereby straining existing medical resources. That, in turn, would negatively affect the quality of physician care and jeopardize the health of all patients.
Micro and Macro Effects
In an election period, political manifestos are influenced by what the majority of voters want. That does not mean that the majority of voters are right about economic development and social programs.
As a rule, election campaign slogans have a problem of scale. They have a good impact on the population, generate positive feedback and ensure parties a strong team of supporters. However, catchy campaign slogans also mask serious programmatic flaws, which tend to become more visible only after the election period. The negative impact of this or that political manifesto can only be seen in the longer term – which is when we all learn who are the real winners and the real losers.
This article first appeared in Tabula Georgian Issue # 114, published 17 September 2012.