Disciple of Adam Smith believes no national asset too sacred to sell

Article by John Blundell in The Scotsman on Yahoo Finance

WE MUST sell everything that can be sold - in conscience." Can you imagine a Scottish politician even hinting at such a sentiment? The quote is from Kakha Bendukide, the new economics minister of the Republic of Georgia.

There seems to be little he will not auction. He only takes cash. Promissory notes or other devices do not interest this remarkable evangelist for free markets. Where our leaders accrue ever more barnacles of dependency, Bendukide has sold off the concert halls and even, amazingly, the national Mint. With the blessing of the new-broom president of Georgia, Mikhail Saakashvili, and the prime minister, Zurab Zhvania, the economy minister is shedding most of the Georgian state's assets.

Something remarkable seems to happen. It is close to alchemy. Liabilities on the public books are transformed into assets in the marketplace. All that is needed is the application of proper pricing and quality ... or abandoning unwanted services into those valued in exchange.

Bendukide has sold off the international airport, the oil terminals, the state's vineyards, film studios, and phone company. He did not pause to urge the civil servants in the department of industrial policy or the National Investment Agency to improve their acts. He closed them down. Next to go will be the Monopolies Authority and the National Innovation Agency. Any Scottish political leader that even suggested euthanasia for Scottish Enterprise would be ridiculed however goofy its investments continue to be.

Bendukide perhaps has an advantage in trying his hand at applied economics. He trained as a biologist. Born in 1956 in Tbilisi, the capital, he made a fortune from biotech companies and heavy engineering plants after the collapse of the Soviet Union. He is not in the league of the true oligarchs, but he had enough to retire in relative opulence until the new regime asked him to apply his evident Midas (NYSE: MDS - news) touch to the entire economy of Georgia.

Bendukide says he has two heroes - Charles Darwin and Adam Smith. He suggests they offer insights into how life represents a vast end-independent flux. The economy is not analogous to the great sweep of evolution, but it does show how spontaneous forces achieve more diversity and complexity than any plan or directed efforts.

Georgia has been a lavish recipient of overseas aid from the International Monetary Fund, the World Bank and other donors. It is a measure of his determination that he says he wants to renounce all such aid programmes within two years. "They only make you dependent of further subsidies."

I commend the new tax policies of the Republic - income tax is slashed from 20 per cent to 12 per cent. Payroll taxes (the same as our NI) cut from 33 per cent to 20 per cent. VAT is sliced from 20 per cent to 18 per cent. He has abolished 12 other taxes altogether.

It may be too early to assess the results of this bold reform, but the Georgian tax authorities were finding it very difficult to collect much. Everyone evaded or traded only in cash. The Bendukide belief is that, contrary to every Scottish politico's views, lower taxes will yield higher revenues. "This is plain Adam Smith wisdom. If I'm wrong about this, I'll be wrong about everything. I'm not making a budget; I'm making a nation."

Georgia is about the size and population of Scotland, but it is far more agriculture-based than we are. Scotland's farmers are largely dependent on subsidies. Georgia is phasing out what it had and returning the prime farmland and vineyards to private ownership.

Georgia has problems we can barely imagine. It has two provinces in open rebellion - Abkazia and Ajara. Its South Ossetian region is far from placid and it borders Chechnya, with all the tribulation that represents. Scotland has little more than mock rivalry with England, while Georgia is contested at every move by Moscow.

Bendukide made his fortune in Moscow and can argue with the Russians as an equal. He asserts that free trade and open markets will bring prosperity to both nations.

Most of those with economic power tend to make a fetish of their currency's value. They also oblige their citizens to use the state's pieces of paper. The radical economics minister shrugs and says "people can use whatever they want. US dollars, euros, yen, gold ... whatever is agreeable to both parties ... even the Georgian lari".

Most other economy ministries are busy preserving subtle impediments to banks and insurance companies trading in their territories. Bendukide says he is determined to remove any barriers. He wants Georgia to welcome all commerce ... of every nationality.

I asked if he had the trust of Mikhail Saakashvili, the 36-year-old president who appointed him but who must gulp at the severity of his actions. "Mikhail spent much of his youth in the United States. He was a New York lawyer. It is probably best that I can take the flack. Remember also, since we were incorporated in the Soviet Union in the 1920s, we have lived the futility and poverty of socialist economics. I have promised the president to abolish my own ministry by 2007, so I have to move fast."

Is he really guided by Adam Smith, a man who died in Edinburgh in the late 18th century? "Smith is one of the all-time greats, but in a way we all know he was correct. We can all see bureaucracy and political meddling always wastes resources. I am surprised there is no statue to Mr Smith in your capital."

The Black Sea resorts of Georgia's coasts used to be prized by Soviet Communist Party officials. They have yet to make their balmy Mediterranean climate an attraction for western holidaymakers. "Luckily that is not part of my remit. My colleagues do this job. There will come a time we are discovered and become fashionable again."

I asked the economy minister what his primary worry was, anticipating that he would express apprehension about the sub-critical secession of two regions. He replied that his greatest fear is the European Union will close its borders to non-common agricultural policy farm produce. "We can feed the EU well and very cheaply ... if only you will let us."

I would love to invite Bendukide to Scotland on a working holiday and learn his diagnosis for our sloth and inertia. In so far as his prejudices seem to be nearly identical to mine, I regard him as a perceptive and wise man. My only criticism, if I have to offer one, is that moustache.

• John Blundell is the director general of the Institute of Economic Affairs

By: JOHN BLUNDELL -- 25-Sep-04

Invest in the IEA. We are the catalyst for changing consensus and influencing public debate.

Donate now

Thank you for
your support

Subscribe to
publications

Subscribe