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From Thieves-in-Law Towards the Rule of Law

Thomas Hobbes (1588-1679) in his Leviathan describes the conditions where there is no place for Industry; because the fruit thereof is uncertain; and consequently no Culture of the Earth; no Navigation, nor use of the commodities that may be imported by Sea; no commodious Building; no Instruments of moving, and removing such things as require much force; no Knowledge of the face of the Earth; no account of Time; no Arts; no Letters; no Society; and which is worst of all, continual fear, and danger of violent death; And the life of man, solitary, poor, nasty, brutish, and short.

Most of us take as a given the necessity of strong property rights protection. It is hard to imagine economies that could flourish and develop if security of persons and property conditions are not met.

But do we necessarily need the authority of the government - a ‘state’ - to guarantee property rights?  Surprisingly many people nowadays would disagree. While carrying a gun and defending one’s own life and property may seem like a viable alternative to relying on the state for protection, can we fully imagine what happens when the authority of the state seizes to function?  Georgia can draw on its own experience to answer this question.


A FAILED STATE

Kutaisi, the hometown of the first author of this article, was a city known for the so called “thieves-in-law” until the early 2000s. No business would sustain long without protection provided by Krisha, i.e. an “authority” that would secure the business against crime and other Krishas. It was strongly recommended to stay at home after 6pm, as there was much violence in the streets. Even home was not a safe place. Burglars would not mind to break into an apartment of house for a TV set or a leather coat.  Moreover, after the robbery you would typically get a call from an intermediary, trying to sell the robbed item back to you.

Police has usually been out of the game. First of all, victims of crime have rarely been willing to approach the police due to the widespread attitude that a real man should solve own problems himself and not deal with the “dogs” (a slang for “policemen”). Second, police has been quite closely cooperating with instead of fighting against the criminal society. Consequently, when thinking about rule of law violation, the first thing that comes to mind are those dark 1990’s. It has not been just Kutaisi, organized crime affected (in some of them it still does) citizens all over the post-soviet states. As the American sociologist Louise I. Shelley puts it: “Organized crime affects citizens through: the privatization process, increased violence in daily life, higher rates of personal and property crime, more deviance, higher prices, and reduced personal security.” (“Post-Soviet Organized Crime,” Demokratizatsiya, Vol. 2, No.3, (Summer 1994), pp. 341-58.)  The most alarming part of the story was the influence of the criminal ideology on the youth. In Kutaisi, many young boys dreamed about becoming a “thief-in-law” and were proud of acquaintances with (abundant) criminal authorities in the city.

Georgia was in fact a failed state. Under the circumstances when the sovereign state lost its ability to protect citizens from violence and crime, the demand for security in the society was met – ironically – by the criminal authorities themselves. Thieves-in-law supplied the security guarantees (of course, for a hefty price) when the state was too weak to do so.

The existence of a large shadow economy provided, at the time, another justification for criminal authorities’ existence. According to Austrian economist Friedrich Schneider, in 2002-2003 Georgia had the second largest shadow economy (after Bolivia) among the 145 countries of the world. While the shadow economy was flourishing even during the Soviet times, in 2002-2003 as much as 68% of the country’s economic activity was not legal (cf. “Shadow Economies of 145 Countries all over the World: What do we really know?” Working Paper, 2006). This of course implied that the state would not be able to serve as a legal authority for solving the disputes between conflicting parties. In this kind of situation, having criminal authorities to solve interpersonal disputes was simply a necessity. Arguably, without such “dispute-solving institutions” and the state so weak at the same time, country’s economy would perform even worse.


WHY DO WE NEED THE STATE?

A model developed by the American political economist Herschel I. Grossman (“Producers and Predators”, Pacific Economic Review, Volume 2, No. 3 (Fall 1998), pages 169–187) gives an insight into why the equilibrium with ‘collective protection’ of property rights is superior to the one with ‘individual protection’. In Grossman’s model people can earn income by choosing to be either producers or predators (criminals). When predators are present, the producers would have to divide their time between production and protection of property. The model shows that in the absence of collective “guarding against predators”, social costs of predation are high, as producers themselves individually spend time on guarding their own possessions, devoting less time to productive economic activity. As a result, society achieves only a sub-optimal outcome, with lower return to every party involved: both predators and producers. In case of collective guarding, on the other hand, producers devote their whole time to productive activity and predation is also reduced as a result of increased costs to the predators.

Yet, the question remains: why is it not optimal to rely on criminal authorities to provide collective protection, instead of relying on the elected government’s authority?  It is perhaps best understood in terms of the ‘conflict of interest’ between the criminal organization’s ‘job’ as private security guards and their goal to maximize the rents from theft.  Once a criminal group achieves a monopoly power in a certain area, no one prevents them from seizing the private property they vowed to protect. This would be the most likely outcome given that a criminal group in a monopoly position does not have a reputation to preserve, and cannot be ‘voted out of the office’. The same argument would of course hold for any authoritarian state that usurps the political power. Any state where courts and police are regarded as ‘puppets’ manipulated by the authorities.


A HAPPY END FOR NOW, BUT RISKS REMAIN

For Kutaisi, and for Georgia, one can say, the crime story had luckily a happy ending. The robust reform of police system and intolerance towards criminal brought the indispensable characteristic of the state - monopoly on the legitimate use of physical force - back to the state. Crime rates, as well as the share of shadow economy have gone down significantly. “Criminal qualification” is no more attractive for the youth of Georgia. However, people still do not trust the party that judges who is right and who is wrong. Looking at CRRC figures, Georgian people’s trust in the institutions directly responsible for enforcing property rights (i.e. courts and police) has improved from 2008 to 2011 and is higher than comparable numbers for our South Caucasian neighbors. Even so, trust in police is almost twice higher than that in court system. Obviously, additional work needs to be done in this respect. According to Babych and Fuenfzig (“An Application of the Growth Diagnostics Framework: The Case of Georgia”, ISET Policy Institute, 2012) lack of broadly interpreted property rights is a binding constraint to Georgia’s economic growth. And property rights include judicial independence, among other things.

 

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Even though the situation now is better than back in the 1990’s, protection and enforcement of property rights is and should still be on the government’s to-do-list.

After the experiences made in the 1990’s, it is difficult to change people’s prior belief that the state is the one who abuses (and not protects) the private property. As security depends on subjective attitudes, it is very important to instill people’s trust in the system. Before the reforms, local businesses avoided taxes but paid to criminal authorities for their security. Now they are paying taxes to the government. Without successful prior experience in a market economy, for some of them the only thing that has changed is the recipient of the money they paid. In this situation, it would be good if the state representatives illustrate the difference between the two payments. Politicians like to brag about how long roads they have paved but nobody ever mentions that taxpayers’ money is spent on the provision of public services by the government. People should realize the difference between taxpaying and racketeering, and if Georgia will succeed in building an impartial judicial system, the country may move on towards the rule of law that is so essential for its economy to succeed.

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Guest - NP on Monday, 04 November 2013 13:47

Very interesting and timely piece. Indeed, one of the big questions after the final act in the transition of power in Georgia is: "will the new rulers of the country be as keen as the previous ones in fighting corruption and crime?" Anecdotal evidence suggests that criminals are becoming a bit more confident (they started already after the parlamentary elections). Will the government confirm their expectations or will it make an effort to crack down on crime and corruption to show its resolve? From the answer to this question will depend what path Georgia will take.

Very interesting and timely piece. Indeed, one of the big questions after the final act in the transition of power in Georgia is: "will the new rulers of the country be as keen as the previous ones in fighting corruption and crime?" Anecdotal evidence suggests that criminals are becoming a bit more confident (they started already after the parlamentary elections). Will the government confirm their expectations or will it make an effort to crack down on crime and corruption to show its resolve? From the answer to this question will depend what path Georgia will take.
Guest - Eric Livny on Monday, 04 November 2013 15:42

“will the new rulers of the country be as keen as the previous ones in fighting corruption and crime?”

Given what we know today, the new rulers should be much better than their predecessors in fighting corruption e.g. in awarding government contracts. However, they should be a bit "worse" in fighting crime. It should not be as easy to convict suspected criminals in court and keep them in jail. Plea bargaining should not be used on such a massive scale to force admission and extract money from suspects.

“will the new rulers of the country be as keen as the previous ones in fighting corruption and crime?” Given what we know today, the new rulers should be much better than their predecessors in fighting corruption e.g. in awarding government contracts. However, they should be a bit "worse" in fighting crime. It should not be as easy to convict suspected criminals in court and keep them in jail. Plea bargaining should not be used on such a massive scale to force admission and extract money from suspects.
Guest - NP on Monday, 04 November 2013 16:12

Fighting crime is a crucial component in any anticorruption strategy. Stating that corruption will be reduced while fight against crime becomes "a bit worse" implies that something else must improve enough to more than compensate for this.
Considering that there are many ways to see corruption and many types of corruption (low level corruption and high level corruption, for example), what is that we know today that makes you think the new rulers should be much better at fighting it? And, which type of corruption are we talking about?
I obviously also hope it will be so, but I would be interesting in understanding better your assumptions.

Fighting crime is a crucial component in any anticorruption strategy. Stating that corruption will be reduced while fight against crime becomes "a bit worse" implies that something else must improve enough to more than compensate for this. Considering that there are many ways to see corruption and many types of corruption (low level corruption and high level corruption, for example), what is that we know today that makes you think the new rulers should be much better at fighting it? And, which type of corruption are we talking about? I obviously also hope it will be so, but I would be interesting in understanding better your assumptions.
Guest - Eric Livny on Monday, 04 November 2013 16:34

the kind of corruption I have in mind is, for example, when the government is awarding contracts to companies owned by senior members of the government (through off-shore companies). Examples abound.

the kind of corruption I have in mind is, for example, when the government is awarding contracts to companies owned by senior members of the government (through off-shore companies). Examples abound.
Guest - NP on Monday, 04 November 2013 19:30

Ok. Then you are assuming that, despite the "lower" effectiveness against crime (that you cite as a possible effect of a less arbitrary way to administer justice) government officials will choose to behave differently, not to awarding contracts to companies owned by senior members of the government (maybe through off-shore based companies). This however is an assumption, not than a logical conclusion (unless I am missing something).
On top of this, you are also assuming that this effect will be so large to more than compensate the possible re-emergence of petty corruption that might occur, again, due to a possible lower effectiveness against crime.
You might still be right but in your explanation I find no compelling reason for things to go automatically in this way.
There are instead very good reasons to believe that giving strong signals that corruption and crime are not (nor will be) tolerated will help things moving in the right direction.

Ok. Then you are assuming that, despite the "lower" effectiveness against crime (that you cite as a possible effect of a less arbitrary way to administer justice) government officials will choose to behave differently, not to awarding contracts to companies owned by senior members of the government (maybe through off-shore based companies). This however is an assumption, not than a logical conclusion (unless I am missing something). On top of this, you are also assuming that this effect will be so large to more than compensate the possible re-emergence of petty corruption that might occur, again, due to a possible lower effectiveness against crime. You might still be right but in your explanation I find no compelling reason for things to go automatically in this way. There are instead very good reasons to believe that giving strong signals that corruption and crime are not (nor will be) tolerated will help things moving in the right direction.
Guest - Eric Livny on Monday, 04 November 2013 19:49

This sounds awfully complicated, dear NP. All I said is that:
1) Georgia should do a bit better in terms of eradicating corruption of the kind that has been quite prevalent under the old regime. I gave one specific example; and
2) Georgia should do a bit "worse" (note the quotation marks) in fighting crime in the sense of giving defendants the right to defend themselves in court, not forcing admissions and extorting payments through a cynical use of the plea bargaining mechanism.

This sounds awfully complicated, dear NP. All I said is that: 1) Georgia should do a bit better in terms of eradicating corruption of the kind that has been quite prevalent under the old regime. I gave one specific example; and 2) Georgia should do a bit "worse" (note the quotation marks) in fighting crime in the sense of giving defendants the right to defend themselves in court, not forcing admissions and extorting payments through a cynical use of the plea bargaining mechanism.
Guest - Giorgi on Monday, 04 November 2013 15:44

I rather hope that the new government will not be "as keen as the previous one in fighting corruption", because the previous one rather privatized the corruption in their own hands than fought it.
The activation (and I do not want to discuss here what caused these activation) of criminal in the cohabitation era is a temporary phenomenon, I strongly believe that...
Thing is, criminal will never flourish without the support of people...
In Soviet Union, they gained this support because "crime" is "anti-state", and "anti-state" in Soviet Era meant "anti-Soviet" (which for many was "anti-dictatorship"). Furthermore, it meant "anti-Imperialistic" for the non-Russians...
Today, "anti-state" means "anti-Georgian", and this is THE difference

I rather hope that the new government will not be "as keen as the previous one in fighting corruption", because the previous one rather privatized the corruption in their own hands than fought it. The activation (and I do not want to discuss here what caused these activation) of criminal in the cohabitation era is a temporary phenomenon, I strongly believe that... Thing is, criminal will never flourish without the support of people... In Soviet Union, they gained this support because "crime" is "anti-state", and "anti-state" in Soviet Era meant "anti-Soviet" (which for many was "anti-dictatorship"). Furthermore, it meant "anti-Imperialistic" for the non-Russians... Today, "anti-state" means "anti-Georgian", and this is THE difference
Guest - NP on Monday, 04 November 2013 17:03

Very interesting point of view. I obviously hope this is the attitude that will prevail. However, one has to be also aware that: 1) people respond to incentives; 2) the concept of Georgia is certainly important but there are also the region, the city, the family. There are those that are perceived to be part of the same group and there are "the others". People have sometimes different attitudes towards crime depending on who is the victim. What is perceived as legitimate or not, ultimately depends a lot on the policy of the state and on its strenght. If the state remains strong and respected, and shows no tolerance for crime and corruption, it will reinforce positive attitudes and I am sure things will go well. If not, somebody sooner or later will start taking advantage of this. This is why it is very important not to take good outcomes for granted but keep watching and working to achieve them.

Very interesting point of view. I obviously hope this is the attitude that will prevail. However, one has to be also aware that: 1) people respond to incentives; 2) the concept of Georgia is certainly important but there are also the region, the city, the family. There are those that are perceived to be part of the same group and there are "the others". People have sometimes different attitudes towards crime depending on who is the victim. What is perceived as legitimate or not, ultimately depends a lot on the policy of the state and on its strenght. If the state remains strong and respected, and shows no tolerance for crime and corruption, it will reinforce positive attitudes and I am sure things will go well. If not, somebody sooner or later will start taking advantage of this. This is why it is very important not to take good outcomes for granted but keep watching and working to achieve them.
Guest - Giorgi on Monday, 04 November 2013 17:47

I agree... though what I mean is: If new government fails to deal with criminal, I think that the attitude of people will be towards the change of government and not towards responding the criminal with placing their trust in criminal authorities...
Moreover, I think this already happened in Georgia. The UNM did not appear out of nowhere, right? All those guys are sons and daughters of Georgian society.
In my opinion, the creation of the UNM itself was very much caused by the reasons I have stated and the society contributed in its formation as much (if not more) as the leaders of the party. The UNM was very aggressive force from the very beginning, yet it got enormous support from the society. Which means people did not care much if the criminals and members of old government have been treated with aggression by the UNM, because it was exactly the demand coming from society.
The UNM started to lose this support only when it started to become too evident that in some cases the innocents got hurt in process and in some cases society understood that the UNM overdosed with violence.

I agree... though what I mean is: If new government fails to deal with criminal, I think that the attitude of people will be towards the change of government and not towards responding the criminal with placing their trust in criminal authorities... Moreover, I think this already happened in Georgia. The UNM did not appear out of nowhere, right? All those guys are sons and daughters of Georgian society. In my opinion, the creation of the UNM itself was very much caused by the reasons I have stated and the society contributed in its formation as much (if not more) as the leaders of the party. The UNM was very aggressive force from the very beginning, yet it got enormous support from the society. Which means people did not care much if the criminals and members of old government have been treated with aggression by the UNM, because it was exactly the demand coming from society. The UNM started to lose this support only when it started to become too evident that in some cases the innocents got hurt in process and in some cases society understood that the UNM overdosed with violence.
Guest - Simon Appleby on Monday, 04 November 2013 18:49

The agriculture sector in Georgia has not benefited from improvements in law and order to the same extent as urban industry. Medium-sized and larger farms not only pay income taxes, but substantial land taxes and property taxes, presumably to pay for policing and maintenance of law and order in the districts they operate in. In practice, they must pay twice; once through their taxes, and a second time for private security services provided through the Security Police. As Georgian law forbids such farmers from engaging armed security staff of their own, they are obliged to use such services, at a cost many times higher than what they could arrange themselves, or see everything they own pilfered by ne'er-do-wells within a very short period of time.

The agriculture sector in Georgia has not benefited from improvements in law and order to the same extent as urban industry. Medium-sized and larger farms not only pay income taxes, but substantial land taxes and property taxes, presumably to pay for policing and maintenance of law and order in the districts they operate in. In practice, they must pay twice; once through their taxes, and a second time for private security services provided through the Security Police. As Georgian law forbids such farmers from engaging armed security staff of their own, they are obliged to use such services, at a cost many times higher than what they could arrange themselves, or see everything they own pilfered by ne'er-do-wells within a very short period of time.
Guest - Eric Livny on Monday, 04 November 2013 19:29

Simon, but how about using a non-armed security service? Would that also be a problem?

Simon, but how about using a non-armed security service? Would that also be a problem?
Guest - Simon Appleby on Monday, 04 November 2013 21:06

When confronted with intruders (and many are carrying firearms, knives, axes, hammers and other implements when confronted), unarmed guards are of little use.

When confronted with intruders (and many are carrying firearms, knives, axes, hammers and other implements when confronted), unarmed guards are of little use.
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