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A blog about economics in the South Caucasus.

From “failed state” to role model – what Greece can learn from Georgia

In the 1990's, my brother traveled in Georgia with a friend. They were cruising around with an old van, looking for archaeological sites and other cultural heritage. Every 10 kilometers they were stopped by police who politely asked for baksheesh. My brother’s friend hated corruption, and, more significantly, had severe difficulties controlling his temper. After this pathetic annoyance was constantly going on for days, he became angry and shouted at the policemen: “Your country is the most rotten place on earth. I will never come back to Georgia and I will tell everybody how miserable it is here!”

The policemen didn’t expect this kind of reaction. They looked at each other and exchanged some words in Georgian. Then their face expressions turned sad… and – guess what? – they humbly returned the baksheesh. Moreover, they went to their police car, took a bottle of wine from somewhere in the back, and handed it over to my brother and his friend.

This experience was exemplary for Georgia in the 1990's. The country was permeated by corruption, but people were essentially decent and uneasy about their own conduct.

Values enter a complex relation with incentives. It is indeed possible for decent people to be corrupt – if the incentives to be corrupt are so strong that they override any intrinsic motivation to be decent. Yet it is almost impossible for a decent person to be happily corrupt. A bad conscience, and a deep-seated desire to end the corrupt state of affairs, plagues everyone who submits to incentives instead of living up to their values.

This is the decisive reason why, after the Rose Revolution, the Georgians have so successfully eradicated corruption. In fact, everybody was suffering from the situation before 2003. Removing corruption was not seen as something which negatively interfered with peoples’ lives, but as a relief from a straining and unbearable situation.

And this is the difference between Georgia and Greece. I doubt that until recently, Greeks were psychologically suffering from the corruption in their society. I am not even sure that they recognized corruption as a problem at all.

When Mobuto Sese Seko came to power in the Congo, everybody expected him to give the less important positions in the government to other members of his Ngbandi tribe, and the most important positions to the members of his closer family. Not being nepotistic would have been considered inappropriate by the people. Why should somebody who has acquired the foremost position in the government not share some of the benefit with his family and his tribe? Wouldn’t it be selfish and unfamilial to give the riches of the state, which can be exploited by those who run the government, to members of other tribes, to members of other families?

Likewise, the Greeks expected somebody who luckily obtained the job of a, say, tax officer, to extract maximum benefit for himself from this juicy position. And a Greek physician would of course take extra money from patients in exchange for priority treatment – wasn’t it just fair that he economically exploited his right to decide on priority treatment? In the end, he had to attend university before and bribe other people there for becoming a doctor.

The shock which recently hit the Greek economy showed the Greeks that their baksheesh economy is not sustainable. If this triggered off a process of reflection – and I am doubtful whether this happened – a real change of values might result, letting people wholeheartedly condemn corruption. Georgia shows that an attitude of integrity is a precondition for successful corruption fighting. If the Greeks get the lesson, I wouldn’t be surprised if in 10 years they can boast with successes in corruption fighting similar to Georgia.

Now let us answer Yasya’s question. Cheops’ pyramid was built within 20 years. The Nile, on the other hand, did not appear within decades, but needed millennia to come into being. And the Cheops’ pyramid is manmade, while the Nile is the outcome of geological processes. Are values like rivers or pyramids?

They are like pyramids, because they can be established within relatively short time, and because they are manmade. This is the reasons why economics must take into account values – if they were completely exogenous, it would indeed be sufficient to only talk about material incentives.

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Guest - nikos avgeris on Wednesday, 25 July 2012 17:13

The issue of corruption is indeed a very important one and at the centre of the debate lately. However i find myself rather disagreeing with the notion of a fight between values and incentives, especially when it comes down to two countries i have lived in. Trust me i am not trying to defend the integrity of my country of origin out of sentimental reasons but having spent my life growing up in Greece and just a little (just 1 year is too little...) time in Georgia I think its rather unfair and most importantly misleading to compare the two. Greece has been on a crazy ride of "development" over the past few decades. Something that someone even as young as me (28) has noticed with personal experience. Greece went straight to being a country of shepherds to being a country of industrial production, seemingly endless influx of European and western funds. Why is this important to the current topic? Well this sudden change in the nature of the economy of Greece has been too fast and sudden to allow for the kind of "capitalistic maturity" that is part of all other western economies and forbids haywire effects like extreme corruption to appear. Now that's not a matter of values of the Greek people. The money just kept flowing in, people found loopholes and evaded their taxes without any cost occurring to them ever, more people then got a piece of the common secret and it spread like wildfire! Now that is the exact moment when you need someone to introduce a strategy against corruption from the top. But as governments were democraticly elected and cutting down on corruption would mean increasing tax pay which means less voters, no government was willing to take that political cost. And the party went on.
Yes thats nothing you havent heard before but the purpose of illustration is to see why Georgia is nothing like Greece. First of all Georgia is way lower in real per capita income than Greece was in the 90s. There is less to gain from corruption, so incentives are not so strong. Secondly Georgia is far from being a democratic country. The government has more to care about the continuation of western support rather than the democratic support of its people (although that is starting to change). Thus it must put up a good show when it comes to matters like corruption. Thats why they polished their police force to never treat foreigners like your brother anymore.

My point is that values never really enter into it, or to be more precise i would think that they are way less important than your article suggests. Greeks always felt bad about corruption but living in an environment where 99% tax evades or is involved in some kind of corruption, you must be a masochist to not follow the trend. For me then it is obvious that the doctor who received money from the patients for priority treatment didnt pre-dicide it because he felt he went through so much to get his degree and now he deserves a piece of the pie, this was just the explanation he might have given to himself to entertain his guilts on being corrupt. He took the money cause that was the norm, cause the patient would have to pay the money to another doctor anyways, so why not him?
Unfortunately the way the west trusted Greece so far (well it was in their favour after all cause Greece has always been a net buyer and not seller to the west) and the way corruption spread in a nation that never had the chance to build their own "capitalistic long term strategy" led to the current crisis which might end up making the corruption image better in the long term (although i highly doubt it).
So where does that leave Georgia? Is Georgia better off cause there is a higher level of values in the country? I would say no. I would say that as the economy gets more developed and as the democratisation process continues the danger of corruption will become ever more intense. Not the kind of corruption that tourist come across with, but the one that can really damage the economy. The outcome then would not be the difference between incentives and values, but rather the very delicate balance between the rising political powers of more democracy (whose aim, truth be told, are more voters) and the longterm safeguards and rules that will be put to place by the west or georgia itself to prevent a Greece-like haywire. In that last thing Greece's experience can provide a valuable lesson for countries like Georgia, Not because Greece was prone to unethical values but because Greece and Georgia share a common ride in different times. Lets hope the current times treat Georgia better than Greece.

The issue of corruption is indeed a very important one and at the centre of the debate lately. However i find myself rather disagreeing with the notion of a fight between values and incentives, especially when it comes down to two countries i have lived in. Trust me i am not trying to defend the integrity of my country of origin out of sentimental reasons but having spent my life growing up in Greece and just a little (just 1 year is too little...) time in Georgia I think its rather unfair and most importantly misleading to compare the two. Greece has been on a crazy ride of "development" over the past few decades. Something that someone even as young as me (28) has noticed with personal experience. Greece went straight to being a country of shepherds to being a country of industrial production, seemingly endless influx of European and western funds. Why is this important to the current topic? Well this sudden change in the nature of the economy of Greece has been too fast and sudden to allow for the kind of "capitalistic maturity" that is part of all other western economies and forbids haywire effects like extreme corruption to appear. Now that's not a matter of values of the Greek people. The money just kept flowing in, people found loopholes and evaded their taxes without any cost occurring to them ever, more people then got a piece of the common secret and it spread like wildfire! Now that is the exact moment when you need someone to introduce a strategy against corruption from the top. But as governments were democraticly elected and cutting down on corruption would mean increasing tax pay which means less voters, no government was willing to take that political cost. And the party went on. Yes thats nothing you havent heard before but the purpose of illustration is to see why Georgia is nothing like Greece. First of all Georgia is way lower in real per capita income than Greece was in the 90s. There is less to gain from corruption, so incentives are not so strong. Secondly Georgia is far from being a democratic country. The government has more to care about the continuation of western support rather than the democratic support of its people (although that is starting to change). Thus it must put up a good show when it comes to matters like corruption. Thats why they polished their police force to never treat foreigners like your brother anymore. My point is that values never really enter into it, or to be more precise i would think that they are way less important than your article suggests. Greeks always felt bad about corruption but living in an environment where 99% tax evades or is involved in some kind of corruption, you must be a masochist to not follow the trend. For me then it is obvious that the doctor who received money from the patients for priority treatment didnt pre-dicide it because he felt he went through so much to get his degree and now he deserves a piece of the pie, this was just the explanation he might have given to himself to entertain his guilts on being corrupt. He took the money cause that was the norm, cause the patient would have to pay the money to another doctor anyways, so why not him? Unfortunately the way the west trusted Greece so far (well it was in their favour after all cause Greece has always been a net buyer and not seller to the west) and the way corruption spread in a nation that never had the chance to build their own "capitalistic long term strategy" led to the current crisis which might end up making the corruption image better in the long term (although i highly doubt it). So where does that leave Georgia? Is Georgia better off cause there is a higher level of values in the country? I would say no. I would say that as the economy gets more developed and as the democratisation process continues the danger of corruption will become ever more intense. Not the kind of corruption that tourist come across with, but the one that can really damage the economy. The outcome then would not be the difference between incentives and values, but rather the very delicate balance between the rising political powers of more democracy (whose aim, truth be told, are more voters) and the longterm safeguards and rules that will be put to place by the west or georgia itself to prevent a Greece-like haywire. In that last thing Greece's experience can provide a valuable lesson for countries like Georgia, Not because Greece was prone to unethical values but because Greece and Georgia share a common ride in different times. Lets hope the current times treat Georgia better than Greece.
Guest - Florian on Wednesday, 25 July 2012 23:57

I am not a greek-hater. I were in Greece probably around 20 times ... I know Rhodes like my home town, I was hiking two weeks in Ikaria and another three weeks in the Pelopponese, and I was cruising with a friend's yacht in the Aegean Sea. Definitely, many "Greek" values are great. It was usually possible to erect a tent anywhere on some farmer's land, and often I got invited for some Greek Salad and vegetable Moussaka. Because the Greeks are a very warm and friendly people, I find it frustrating to see the Greek economy wracking up.
The reasons for the Greek problems which you mention are not irrelevant. Yet I am sure that corruption is always a value problem. It is true that there are strong incentives to submit to corrupt practices if everybody is corrupt. Being the only angel among devils is a pretty unpleasant role. Yet an open discussion within the Greek society about their way of running their economy could have set in much earlier. Now we read that ordinary Greek people report "suspicious" wealth to the tax authorities. This hits politicians, functionaries etc. whose wealth isn't compatible with integrity. Why didn't this happen earlier? Why has an income of 60000 Euro for a Greek train driver not led to a public outcry a long time ago? I have traveled with the Greek train many times. The railways are totally run down, trains from the 1950's cannot go faster than 30km/h, and a lousy time table and crazy delays are unnerving. So I know that there were lots of things where this money could have been invested. Compare this to Germany. In Germany there are media reports when the average delay of German trains has gone up by 5 minutes. Whenever there is some train trouble, the Deutsche Bahn gets kicked bottom in the media. Why did the Greeks, on the other hand, were so tolerant with the obvious deficits in their country?
Pasok won the Greek elections in 2009 with the slogan "More Money!". Why did people vote for Pasok, instead of saying no to special interest politics?
Even if you are an angel among devils, you can vote for a less corrupt policy. If you reply that no political party was less corrupt, then this also says a lot about the state of affairs...
Summing up, it looks to me as if the Greek population was quite satisfied with how things were going in their country.
The argument that Greece imports stimulated other European economies I find quite problematic. Better than somebody who buys like crazy is somebody who also pays their purchases.

I am not a greek-hater. I were in Greece probably around 20 times ... I know Rhodes like my home town, I was hiking two weeks in Ikaria and another three weeks in the Pelopponese, and I was cruising with a friend's yacht in the Aegean Sea. Definitely, many "Greek" values are great. It was usually possible to erect a tent anywhere on some farmer's land, and often I got invited for some Greek Salad and vegetable Moussaka. Because the Greeks are a very warm and friendly people, I find it frustrating to see the Greek economy wracking up. The reasons for the Greek problems which you mention are not irrelevant. Yet I am sure that corruption is always a value problem. It is true that there are strong incentives to submit to corrupt practices if everybody is corrupt. Being the only angel among devils is a pretty unpleasant role. Yet an open discussion within the Greek society about their way of running their economy could have set in much earlier. Now we read that ordinary Greek people report "suspicious" wealth to the tax authorities. This hits politicians, functionaries etc. whose wealth isn't compatible with integrity. Why didn't this happen earlier? Why has an income of 60000 Euro for a Greek train driver not led to a public outcry a long time ago? I have traveled with the Greek train many times. The railways are totally run down, trains from the 1950's cannot go faster than 30km/h, and a lousy time table and crazy delays are unnerving. So I know that there were lots of things where this money could have been invested. Compare this to Germany. In Germany there are media reports when the average delay of German trains has gone up by 5 minutes. Whenever there is some train trouble, the Deutsche Bahn gets kicked bottom in the media. Why did the Greeks, on the other hand, were so tolerant with the obvious deficits in their country? Pasok won the Greek elections in 2009 with the slogan "More Money!". Why did people vote for Pasok, instead of saying no to special interest politics? Even if you are an angel among devils, you can vote for a less corrupt policy. If you reply that no political party was less corrupt, then this also says a lot about the state of affairs... Summing up, it looks to me as if the Greek population was quite satisfied with how things were going in their country. The argument that Greece imports stimulated other European economies I find quite problematic. Better than somebody who buys like crazy is somebody who also pays their purchases.
Guest - Eric on Thursday, 26 July 2012 19:10

I very much like the post, even though the comparison to Greece is not terribly scientific. Something tells me that if Florian's brother yells in exactly the same way at a Greek policeman he might be treated to a bottle of Ouzo.

I agree with Florian on the basic point, however. If the underlying culture is one of decency, corruption is not "enjoyed" by both parties engaged in the act of, say, bribing, and eradicating corruption becomes an easier task.

The comparison to Africa needs a more nuanced discussion. Nepotism is ugly, and while perhaps essential to the short-term stability of a dictatorship, it produces really bad economic outcomes and would eventually bring down the dictatorship in question.

Petty "corruption", on the other hand, is not necessarily a bad thing. In many developing countries around the world, it is a common practice to tip doctors, teachers, and other poorly-paid gov't official for providing a good and speedy service (in the same way that one tips a waiter). Such tips are not necessarily "extracted" but are sort-of expected; the size of tips is more often than not determined by the "briber" (at will). Moreover, they do not do any harm to the economy, and may be considered a welfare-enhancing way of covering the cost of public servants (and the services they provide, if useful). It is a bit similar to taxing the drivers (rather than the entire population) for the use of toll roads, tunnels and bridges.

[A side remark: I actually find it rather annoying that in today's Georgian reality doctors that come for a home visit to treat my children would refuse a tip for fear of losing their jobs and being prosecuted. To me this seems like overshooting. ]

Florian's use of the "terminology" (values, rivers, pyramids, etc.) in the latter part of the article is a bit confusing. Georgian decency is assumed by Florian (in this and previous posts) to be an impermutable (or very slowly changing), pyramid-like feature of the Georgian society. It withstood the test of time and extremely indecent regimes (particularly the "lost decades" of the post-Soviet existence).

Now, the prevalence of bribe extraction by the corrupt police or government officials does not necessarily represent the cultural “pyramid” of the Georgian or Greek societies. This practice emerged in reaction to a particular institutional setup (economic collapse and failed state in Georgia, and the fast track promotion to EU-style capitalism in Greece) DESPITE a culture of decency, and at a cost to each individual involved in corrupt transactions. And precisely because it is not a cultural phenomenon (or to the extent that it is not a cultural phenomenon) bribe extraction can be eradicated in a few weeks.

Compared to particular institutional arrangements and people's behavioral reactions to these arrangements (e.g. corruption) cultural values appear to be quite like PYRAMIDS. They could be gradually eroded over time, just like pyramids, but they cannot be uprooted in a single year, and not even in 20 years.

I very much like the post, even though the comparison to Greece is not terribly scientific. Something tells me that if Florian's brother yells in exactly the same way at a Greek policeman he might be treated to a bottle of Ouzo. I agree with Florian on the basic point, however. If the underlying culture is one of decency, corruption is not "enjoyed" by both parties engaged in the act of, say, bribing, and eradicating corruption becomes an easier task. The comparison to Africa needs a more nuanced discussion. Nepotism is ugly, and while perhaps essential to the short-term stability of a dictatorship, it produces really bad economic outcomes and would eventually bring down the dictatorship in question. Petty "corruption", on the other hand, is not necessarily a bad thing. In many developing countries around the world, it is a common practice to tip doctors, teachers, and other poorly-paid gov't official for providing a good and speedy service (in the same way that one tips a waiter). Such tips are not necessarily "extracted" but are sort-of expected; the size of tips is more often than not determined by the "briber" (at will). Moreover, they do not do any harm to the economy, and may be considered a welfare-enhancing way of covering the cost of public servants (and the services they provide, if useful). It is a bit similar to taxing the drivers (rather than the entire population) for the use of toll roads, tunnels and bridges. [A side remark: I actually find it rather annoying that in today's Georgian reality doctors that come for a home visit to treat my children would refuse a tip for fear of losing their jobs and being prosecuted. To me this seems like overshooting. ] Florian's use of the "terminology" (values, rivers, pyramids, etc.) in the latter part of the article is a bit confusing. Georgian decency is assumed by Florian (in this and previous posts) to be an impermutable (or very slowly changing), pyramid-like feature of the Georgian society. It withstood the test of time and extremely indecent regimes (particularly the "lost decades" of the post-Soviet existence). Now, the prevalence of bribe extraction by the corrupt police or government officials does not necessarily represent the cultural “pyramid” of the Georgian or Greek societies. This practice emerged in reaction to a particular institutional setup (economic collapse and failed state in Georgia, and the fast track promotion to EU-style capitalism in Greece) DESPITE a culture of decency, and at a cost to each individual involved in corrupt transactions. And precisely because it is not a cultural phenomenon (or to the extent that it is not a cultural phenomenon) bribe extraction can be eradicated in a few weeks. Compared to particular institutional arrangements and people's behavioral reactions to these arrangements (e.g. corruption) cultural values appear to be quite like PYRAMIDS. They could be gradually eroded over time, just like pyramids, but they cannot be uprooted in a single year, and not even in 20 years.
Guest - Florian on Thursday, 26 July 2012 20:33

The blog post does not live up to scientific scrutiny -- agreed :-).

Petty corruption is considered by some economists to be a kind of lubricant for economic interaction. However, as an economic theorist, widespread petty corruption looks like a pareto-inferior situation to me. If it was standard that NOBODY paid bribes, the outcome would be the same but everything was cheaper and we would have a smaller dead-weight loss.

In any case, petty corruption and giving tips are qualitatively different issues. Like Eric, I also find it unpleasant that Georgians so often reject tips. Yet is the reason that Georgians hate corruption so much? I am not sure. An alternative reason might be that many Georgians simply do not understand the difference between bribes and tips. A tip is not a payment I am forced to make, but it is an acknowledgement of good work. Bribes, on the other hand, MUST be paid -- otherwise a job will not be done or one will be disadvantaged compared to other customers. There is no problem with tips, but at least in my opinion there is a big problem with bribes.

Concerning the allegory of pyramids and rivers, there is indeed a widespread belief that values are impermutable or at least slow-changing. Yet I do not subscribe to this view and I hope I haven't written something which could be interpreted in this way. I think that there are plenty of incidents in history which caused values to emerge, to change, or to disappear virtually overnight. Hiroshima and Nagasaki changed the Japanese attitudes towards war withing very short time, and since 1945 Japan -- which previously pursued an expansionist and aggressive policy towards its neighbours -- has become a strongly pacifistic country. Wasn't Japanese militarism "uprooted" within a very short time?

Anyway, I agree with Eric that the prevalence of corrupt practices among the police or elsewhere in the society does not NECESSARILY have a connection with underlying values. I have an intuition that there is such a connection, but one would have to do specific research to find out more about it.

The blog post does not live up to scientific scrutiny -- agreed :-). Petty corruption is considered by some economists to be a kind of lubricant for economic interaction. However, as an economic theorist, widespread petty corruption looks like a pareto-inferior situation to me. If it was standard that NOBODY paid bribes, the outcome would be the same but everything was cheaper and we would have a smaller dead-weight loss. In any case, petty corruption and giving tips are qualitatively different issues. Like Eric, I also find it unpleasant that Georgians so often reject tips. Yet is the reason that Georgians hate corruption so much? I am not sure. An alternative reason might be that many Georgians simply do not understand the difference between bribes and tips. A tip is not a payment I am forced to make, but it is an acknowledgement of good work. Bribes, on the other hand, MUST be paid -- otherwise a job will not be done or one will be disadvantaged compared to other customers. There is no problem with tips, but at least in my opinion there is a big problem with bribes. Concerning the allegory of pyramids and rivers, there is indeed a widespread belief that values are impermutable or at least slow-changing. Yet I do not subscribe to this view and I hope I haven't written something which could be interpreted in this way. I think that there are plenty of incidents in history which caused values to emerge, to change, or to disappear virtually overnight. Hiroshima and Nagasaki changed the Japanese attitudes towards war withing very short time, and since 1945 Japan -- which previously pursued an expansionist and aggressive policy towards its neighbours -- has become a strongly pacifistic country. Wasn't Japanese militarism "uprooted" within a very short time? Anyway, I agree with Eric that the prevalence of corrupt practices among the police or elsewhere in the society does not NECESSARILY have a connection with underlying values. I have an intuition that there is such a connection, but one would have to do specific research to find out more about it.
Guest - Eric on Thursday, 26 July 2012 22:14

Florian, you have argued that decency is a relatively "permanent" feature of the Georgian culture. Thus, according to you, it might take the equivalent of the nuclear bomb to transform Georgians into a nation of thieves. If so, decency is a part of the cultural "pyramid", not a passing fashion. Corruption could be eradicated very easily; decency is much more difficult to destroy.

On Japan and its supposedly militaristic culture: the claim that the Japanese culture was inherently militaristic is no more true than the claim -- made often today -- that Islam is inherently militaristic. Both Japan and Islamic countries went through different phases in their history, some expansionary and military, and some introvert, parochial and peaceful. I don't think that militarism is or has been the defining culture of either culture, and that's why the 1945 nuke strike (and, perhaps 9/11) was able to change the behavioral response of the mainstream Japanese (and, perhaps, Islamic) society.

Wikipedia has an article on the Japanese militarism http://en.wikipedia.org/wiki/Japanese_militarism from which I learn that the militaristic period in Japan's history was a relatively short one. It started after the samurai-led Meiji restoration in the second half of the 19th century. Here is an interesting quote from the introduction:

"The early Meiji government viewed Japan as threatened by western imperialism, and one of the prime motivations for the [militaristic] policy was to strengthen Japan's economic and industrial foundations, so that a strong military could be built to defend Japan against outside powers.

Domestic issues within early Meiji Japan also called for a strong military. The early Meiji government was threatened by internal revolts, such as the Saga Rebellion and Satsuma Rebellion, and numerous rural peasant uprisings.

The rise of universal military conscription, introduced by Yamagata Aritomo in 1873, along with the proclamation of the Imperial Rescript to Soldiers and Sailors in 1882 enabled the military to indoctrinate thousands of men from various social backgrounds with military-patriotic values and the concept of unquestioning loyalty to the Emperor as the basis of the Japanese state (kokutai).
Yamagata like many Japanese was strongly influenced by the recent striking success of Prussia [emphasis mine - E.L.] in transforming itself from an agricultural state to a leading modern industrial and military power. He accepted Prussian political ideas, which favored military expansion abroad and authoritarian government at home. The Prussian model also devalued the notion of civilian control over the independent military, which meant that in Japan, as in Germany, the military could develop into a state within a state, thus exercising greater influence on politics in general."

My interpretation would be that the Japanese militarism (much like German militarism, Georgian corruption and Greek populist politics) is not an intrinsic part of Japan's cultural pyramid. The immutable culture of Japan, in my limited understanding, is about something else - social cohesion and hierarchy, respect of the elderly and authority, preference for solidarity over competition. It is easy to see how such a culture provided militarism with a fertile ground once Japan was faced with an external threat from the US and Western powers. It allowed militarism to become a secular cult of sorts in the first part of the 20th century, only to vanish in 1945.

Incidentally, I would argue that the rise and demise of Prussian and, later, German militarism can be explained in exactly the same way. Even the years are exactly the same years.

Florian, you have argued that decency is a relatively "permanent" feature of the Georgian culture. Thus, according to you, it might take the equivalent of the nuclear bomb to transform Georgians into a nation of thieves. If so, decency is a part of the cultural "pyramid", not a passing fashion. Corruption could be eradicated very easily; decency is much more difficult to destroy. On Japan and its supposedly militaristic culture: the claim that the Japanese culture was inherently militaristic is no more true than the claim -- made often today -- that Islam is inherently militaristic. Both Japan and Islamic countries went through different phases in their history, some expansionary and military, and some introvert, parochial and peaceful. I don't think that militarism is or has been the defining culture of either culture, and that's why the 1945 nuke strike (and, perhaps 9/11) was able to change the behavioral response of the mainstream Japanese (and, perhaps, Islamic) society. Wikipedia has an article on the Japanese militarism http://en.wikipedia.org/wiki/Japanese_militarism from which I learn that the militaristic period in Japan's history was a relatively short one. It started after the samurai-led Meiji restoration in the second half of the 19th century. Here is an interesting quote from the introduction: "The early Meiji government viewed Japan as threatened by western imperialism, and one of the prime motivations for the [militaristic] policy was to strengthen Japan's economic and industrial foundations, so that a strong military could be built to defend Japan against outside powers. Domestic issues within early Meiji Japan also called for a strong military. The early Meiji government was threatened by internal revolts, such as the Saga Rebellion and Satsuma Rebellion, and numerous rural peasant uprisings. The rise of universal military conscription, introduced by Yamagata Aritomo in 1873, along with the proclamation of the Imperial Rescript to Soldiers and Sailors in 1882 enabled the military to indoctrinate thousands of men from various social backgrounds with military-patriotic values and the concept of unquestioning loyalty to the Emperor as the basis of the Japanese state (kokutai). Yamagata like many Japanese was strongly influenced by the recent striking success of Prussia [emphasis mine - E.L.] in transforming itself from an agricultural state to a leading modern industrial and military power. He accepted Prussian political ideas, which favored military expansion abroad and authoritarian government at home. The Prussian model also devalued the notion of civilian control over the independent military, which meant that in Japan, as in Germany, the military could develop into a state within a state, thus exercising greater influence on politics in general." My interpretation would be that the Japanese militarism (much like German militarism, Georgian corruption and Greek populist politics) is not an intrinsic part of Japan's cultural pyramid. The immutable culture of Japan, in my limited understanding, is about something else - social cohesion and hierarchy, respect of the elderly and authority, preference for solidarity over competition. It is easy to see how such a culture provided militarism with a fertile ground once Japan was faced with an external threat from the US and Western powers. It allowed militarism to become a secular cult of sorts in the first part of the 20th century, only to vanish in 1945. Incidentally, I would argue that the rise and demise of Prussian and, later, German militarism can be explained in exactly the same way. Even the years are exactly the same years.
Guest - Florian on Friday, 27 July 2012 23:19

Very interesting questions and thoughts! I think we will agree that values are convictions and attitudes of people which are shared by, say, a huge majority of the members of a nation or ethnic group. Yet are values generally long-term, or can they come and go within rather short periods of time?

It is true that I conjectured "Georgian decency" to be a rather long-run feature, but this doesn't mean that in general it is impossible for values to emerge or disappear quickly.

Anyway, I absolutely admit that what I say about specific Georgian values is highly speculative. My conclusions are just based on casual observations. For substantiating such conjectures, I guess it is necessary to live in Georgia for many years. However, in a blog I feel allowed to give way to some speculative thoughts.

The Wikipedia article about Japanese militarism provides all kinds of reasons which "rationally" explain Japanese militarist and expansionist policies, but it does not speak about culture and values. Today, we shy away from saying that there are highly problematic cultures and values. We try to explain everything as the outcome of rational decision or at least as the result of comprehensible fears and concerns of the people we talk about. So instead of saying that "between 1850 and 1945 Japanese people were militaristic and nationally chauvinistic", we exculpate the Japanese, their culture and their values, and try to explain everything as resulting from special historical constellations.

I know much more about Germany and its history than I know about Japan. So let us talk about Nazi Germany instead (Godwin's law!).

In Germany, at around 1940, after the successful campaign against France, the Nazi regime was backed by huge parts of the population. I remember some historian say that at this point of time, the Nazis had an approval rate of approximately 90% in the population. Of course, not all people were nazified to the same degree, but some Nazi values were absorbed by the huge majority of people. I think, measured by the values of enlightenment and humanism, it is fair to say that a substantial part of German culture and German values were evil at that time.

I am absolutely convinced that a good deal of these evil values were no offspring of long-term German character traits, but were just recently implemented into people's minds in the years 1933-1940. This, of course, in particular holds for Germans who were born at around 1920 and were exposed to Nazi socialization from a very young age. Yet the value shift brought about by the Nazis definitely affected many adult and mature persons as well. Let's be open about it -- from 1933-1940, the Germans turned into a people of Nazis. When the allies bombed civilian areas in German cities, the huge majority of those people who died in the firestorms justly received the fruits of the ideology they embraced.

However, values which lead to disaster are quickly abandoned. When the Germans found themselves after the war with almost all their cities bombed to ruins, being an outcast among the nations, having to take responsibility for dreadful atrocities, and forced to cede one third of their territory, Nazi values became very quickly unpopular among the majority of people.

Values come and go. Some of them endure for centuries, others just for 12 years. Yet I think that as economists and social scientists, we should not try to explain everything without taking these underlying convictions of people into account.

Very interesting questions and thoughts! I think we will agree that values are convictions and attitudes of people which are shared by, say, a huge majority of the members of a nation or ethnic group. Yet are values generally long-term, or can they come and go within rather short periods of time? It is true that I conjectured "Georgian decency" to be a rather long-run feature, but this doesn't mean that in general it is impossible for values to emerge or disappear quickly. Anyway, I absolutely admit that what I say about specific Georgian values is highly speculative. My conclusions are just based on casual observations. For substantiating such conjectures, I guess it is necessary to live in Georgia for many years. However, in a blog I feel allowed to give way to some speculative thoughts. The Wikipedia article about Japanese militarism provides all kinds of reasons which "rationally" explain Japanese militarist and expansionist policies, but it does not speak about culture and values. Today, we shy away from saying that there are highly problematic cultures and values. We try to explain everything as the outcome of rational decision or at least as the result of comprehensible fears and concerns of the people we talk about. So instead of saying that "between 1850 and 1945 Japanese people were militaristic and nationally chauvinistic", we exculpate the Japanese, their culture and their values, and try to explain everything as resulting from special historical constellations. I know much more about Germany and its history than I know about Japan. So let us talk about Nazi Germany instead (Godwin's law!). In Germany, at around 1940, after the successful campaign against France, the Nazi regime was backed by huge parts of the population. I remember some historian say that at this point of time, the Nazis had an approval rate of approximately 90% in the population. Of course, not all people were nazified to the same degree, but some Nazi values were absorbed by the huge majority of people. I think, measured by the values of enlightenment and humanism, it is fair to say that a substantial part of German culture and German values were evil at that time. I am absolutely convinced that a good deal of these evil values were no offspring of long-term German character traits, but were just recently implemented into people's minds in the years 1933-1940. This, of course, in particular holds for Germans who were born at around 1920 and were exposed to Nazi socialization from a very young age. Yet the value shift brought about by the Nazis definitely affected many adult and mature persons as well. Let's be open about it -- from 1933-1940, the Germans turned into a people of Nazis. When the allies bombed civilian areas in German cities, the huge majority of those people who died in the firestorms justly received the fruits of the ideology they embraced. However, values which lead to disaster are quickly abandoned. When the Germans found themselves after the war with almost all their cities bombed to ruins, being an outcast among the nations, having to take responsibility for dreadful atrocities, and forced to cede one third of their territory, Nazi values became very quickly unpopular among the majority of people. Values come and go. Some of them endure for centuries, others just for 12 years. Yet I think that as economists and social scientists, we should not try to explain everything without taking these underlying convictions of people into account.
Guest - Eric on Saturday, 28 July 2012 02:27

Florian, I think I now finally understand your definition of values. These are essentially any widely shared believes and convictions that could potentially shape economic and political decisions (and realities) at a given point of time. For instance, if a common conviction in Nazi Germany was that Jews are thieves (or whatever), this inevitably affected the choices people made (not only whether to marry a Jew, but also whether to buy from a Jew, etc.) and, through them, the economic and political realities of the time. If so defined and understood, some "values" can be assumed to change very quickly.

My definition of cultural values, as opposed to any widely shared beliefs, was different. Essentially, I defined them as only those widely shared beliefs that survive through the ages, get enshrined in folklore, are embodied in the ways in which people raise their children and interact within the family and organizations. To the extent that I am familiar with Germany, I would place German discipline and organization in the basket of cultural values. Nazi militarism and xenophobia, on the other hand, belong elsewhere - a temporary delusion or mass hypnosis of (almost) the entire nation.

Florian, I think I now finally understand your definition of values. These are essentially any widely shared believes and convictions that could potentially shape economic and political decisions (and realities) at a given point of time. For instance, if a common conviction in Nazi Germany was that Jews are thieves (or whatever), this inevitably affected the choices people made (not only whether to marry a Jew, but also whether to buy from a Jew, etc.) and, through them, the economic and political realities of the time. If so defined and understood, some "values" can be assumed to change very quickly. My definition of cultural values, as opposed to any widely shared beliefs, was different. Essentially, I defined them as only those widely shared beliefs that survive through the ages, get enshrined in folklore, are embodied in the ways in which people raise their children and interact within the family and organizations. To the extent that I am familiar with Germany, I would place German discipline and organization in the basket of cultural values. Nazi militarism and xenophobia, on the other hand, belong elsewhere - a temporary delusion or mass hypnosis of (almost) the entire nation.
Guest - Florian on Saturday, 28 July 2012 08:25

I fully agree with this. It is indeed crucial how one defines "values" and "culture". I think that Eric's definition is more commonly accepted, while my definition may be useful if one talks specifically about economic policy. Eric's long-run values can hardly be influenced by economic and political decisions, and are hence rightfully ignored in many economic models. My values, on the other hand, can be influenced by the decisions of policy makers. So they may be instrumental for achieving economic and political goals and shouldn't be ignored.

I fully agree with this. It is indeed crucial how one defines "values" and "culture". I think that Eric's definition is more commonly accepted, while my definition may be useful if one talks specifically about economic policy. Eric's long-run values can hardly be influenced by economic and political decisions, and are hence rightfully ignored in many economic models. My values, on the other hand, can be influenced by the decisions of policy makers. So they may be instrumental for achieving economic and political goals and shouldn't be ignored.
Guest - nikos avgeris on Thursday, 26 July 2012 20:58

Eric i think your last two paragraphs form a great "synthesis" of florian's and mine "thesis" and "antithesis". If i read you correctly, bribing can and has been significantly reduced in short periods both in the case of Georgia and Greece at different times, pretty much depending on the institutional setup. On the other hand as corruption incentives promote a more corruption tolerance "culture" slowly through time, the eradication of that tolerance takes time too.

For me, answering florians questions, people voted for Pasok in 2009 and never did anything against corruption and the trade and fiscal deficits over the preceding 20 year period for exactly the same reason that noone ever did anything against the rapid and out of control growth of the global financial system that led to the 2008 crisis. Its true that there was warning and discussion about the inefficiencies of the Greek economy (i still remember the emphatic ranting of many of my undergrad professors about the problems of the greek economy back in the early 2000s' when things were still good) as there was some actions as well, mainly from ministers or governments that usually withdrew those actions after the obvious political cost they incurred. The reasons for that was the inability of the Greek average voter to realise the importance and implications of the long term effects that institutional and non-institutional arrangements have on a western style capitalistic economy. And that is, at least in my opinion, because of the fact that Greek capitalism never matured, it was just established from outside. How can you expect the average voter, the now 45+ aged person who grew up considering commuting with the bus a luxury to understand the long term implications of trade and fiscal deficits and more importantly to vote based on that criteria when there is always someone shouting "MORE MONEY! THE PARTY GOES ON!"?

Finally, Florian, i never took you as a Greek-hater, even though most Greeks nowadays do have that take on people that are baffled by the way things used to run in Greece and struggle to accept the notion of a nation allowing for such phenomena. I am rather suggesting that if you look deep down and close, i think you can very easily understand why this happened, using criteria that stand for every nation in the world. And even if you cant then i doubt you could be a bigger Greek-hater than i am :)

Eric i think your last two paragraphs form a great "synthesis" of florian's and mine "thesis" and "antithesis". If i read you correctly, bribing can and has been significantly reduced in short periods both in the case of Georgia and Greece at different times, pretty much depending on the institutional setup. On the other hand as corruption incentives promote a more corruption tolerance "culture" slowly through time, the eradication of that tolerance takes time too. For me, answering florians questions, people voted for Pasok in 2009 and never did anything against corruption and the trade and fiscal deficits over the preceding 20 year period for exactly the same reason that noone ever did anything against the rapid and out of control growth of the global financial system that led to the 2008 crisis. Its true that there was warning and discussion about the inefficiencies of the Greek economy (i still remember the emphatic ranting of many of my undergrad professors about the problems of the greek economy back in the early 2000s' when things were still good) as there was some actions as well, mainly from ministers or governments that usually withdrew those actions after the obvious political cost they incurred. The reasons for that was the inability of the Greek average voter to realise the importance and implications of the long term effects that institutional and non-institutional arrangements have on a western style capitalistic economy. And that is, at least in my opinion, because of the fact that Greek capitalism never matured, it was just established from outside. How can you expect the average voter, the now 45+ aged person who grew up considering commuting with the bus a luxury to understand the long term implications of trade and fiscal deficits and more importantly to vote based on that criteria when there is always someone shouting "MORE MONEY! THE PARTY GOES ON!"? Finally, Florian, i never took you as a Greek-hater, even though most Greeks nowadays do have that take on people that are baffled by the way things used to run in Greece and struggle to accept the notion of a nation allowing for such phenomena. I am rather suggesting that if you look deep down and close, i think you can very easily understand why this happened, using criteria that stand for every nation in the world. And even if you cant then i doubt you could be a bigger Greek-hater than i am :)
Guest - Florian on Thursday, 26 July 2012 21:16

Ok, there is no question that values are not the only reason which drive economic developments. In the end, I cannot prove that values have anything to do with the prevalence or absence of corruption in Georgia, Greece, or elsewhere. The arguments which you put forward, Nikos, for explaining the situation in Greece, are definitely very valid. Anyway, economic developments are usually multicausal, and so you also cannot prove that values are an unimportant or even negligible factor.
I am envisioning an economics science which puts more emphasis on values and cultures (and of course I am neither the first nor the only one who has his idea). Standard economics does not take into account these things, and I consider this to be a blind spot. Corruption is just one possible application of "value economics".
One should play some kind of "bribe game" with Georgians and Greeks in the laboratory and find out whether different attitudes can be identified.

Ok, there is no question that values are not the only reason which drive economic developments. In the end, I cannot prove that values have anything to do with the prevalence or absence of corruption in Georgia, Greece, or elsewhere. The arguments which you put forward, Nikos, for explaining the situation in Greece, are definitely very valid. Anyway, economic developments are usually multicausal, and so you also cannot prove that values are an unimportant or even negligible factor. I am envisioning an economics science which puts more emphasis on values and cultures (and of course I am neither the first nor the only one who has his idea). Standard economics does not take into account these things, and I consider this to be a blind spot. Corruption is just one possible application of "value economics". One should play some kind of "bribe game" with Georgians and Greeks in the laboratory and find out whether different attitudes can be identified.
Guest - Eric on Thursday, 26 July 2012 22:17

It was meant to be a synthesis, Nikos :) Hope all is well!!!

It was meant to be a synthesis, Nikos :) Hope all is well!!!
Guest - Kristo on Sunday, 29 July 2012 21:39

I have lived all my life in Greece and never a policeman ask me for a baksheesh.

The situation in Georgia was much worse than in greece today, I guess.Of course i am not sayng there is no corruption....

However, I think the idea that baksheesh economy is to blame for the economic situation in greece is rather simplistic.

Virtuous countries like Portugal, and northern german federal states are in heavy debts too.

I have lived all my life in Greece and never a policeman ask me for a baksheesh. The situation in Georgia was much worse than in greece today, I guess.Of course i am not sayng there is no corruption.... However, I think the idea that baksheesh economy is to blame for the economic situation in greece is rather simplistic. Virtuous countries like Portugal, and northern german federal states are in heavy debts too.
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