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A blog about economics in the South Caucasus.

Since When Do Georgians Trust Banks More Than Friends?

There are different ways to measure the success of nations. Various surveys are conducted and different indices are compiled to measure the well-being of countries across the world. Nowadays, there is an increasing interest to measure a country’s success not just in economic terms but far more broadly.

Fortunately, Georgia is getting better and better integrated in these types of comparative studies, giving us an idea of where we stand.

Table 1: Georgia’s recent rankings in a sample of surveys:

 

Legatum Prosperity Index 2012 is the one I will review today while focusing on the most interesting findings concerning Georgia’s ranking.

” Prosperity extends beyond just material wealth. It includes factors such as social capital, effective governance, human rights and liberties, health, opportunity, security, and overall quality of life.”

2012 was not the first time Legatum Prosperity Index was compiled, but it was the first time Georgia was included in the rankings. The rankings include 142 countries, with 32 countries added in 2012. Even though the index is dated 2012, most of the data comes from previous years, mostly 2011.

Legatum Institute used some of the established theoretical and empirical research to identify the main determinants of prosperity. In total, the main index and its eight sub-indices are based on 89 selected variables. The eight sub-indices are: Economy, Entrepreneurship & Opportunity, Governance, Education, Health, Safety & Security, Personal Freedom, and Social Capital.

Table 2: Georgia and a number of other countries in the Legatum Prosperity Index

 

As we see, Georgia is doing relatively better in Governance, Safety & Security, and Education, while it ranks surprisingly low in Economy and Social Capital. The reader can see the detailed data on the Prosperity website. I will use the opportunity here to discuss the determinants of Georgia’s very poor performance in the Social Capital category and briefly go through a few key aspects of the economy sub-index.

The Social Capital sub-index evaluates the strength of social ties, trust among individuals, and the effect of marriage and religious attendance on well-being.

“Social networks and the cohesion a society experiences when people trust one another have a direct effect on the prosperity of a country. …. the term “capital” in “social capital” highlights the contribution of social networks as an asset that produces economic and wellbeing returns.”

The Social Capital sub-index was compiled using 7 variables: Trust in Others, Perceptions of Social Support, Donations, Formal Volunteering, Helping Strangers, Marriage Rate, and Religious Attendance. The table below provides a more detailed description of these variables presenting the data for Georgia as well as the corresponding global averages.

Table 3: Social Capital Sub-Index Variables

Except for the marriage rate, Georgia is below the global average in all categories. The most surprising fact is that only half of Georgians think they can rely on friends and family for help. That’s really mind boggling. Is it no longer true that Georgians have very special family ties and understand fully what true friendship is?

Surprisingly, according to Legatum Institute’s survey, instead of friends and family, Georgians tend to put their trust in financial institutions. There are 16 variables that determine the Economy sub-index. Trust in Financial Institutions is one category where Georgia exceeds the global average: in 2011, 77.5% of Georgians had trust in Financial Institutions while the global average stood at 60.9%. Almost all other variables demonstrate Georgia’s relatively poorer performance. For example, only 27.2% of Georgians are satisfied with the living standards compared to the global average of 62.8%.

Could it be that reliance on friends and family was understood by the respondents as financial reliance? Indeed, if your friends and family are as poor as you (or even poorer), you may consider them to be not particularly “reliable” in the strictly financial sense.

A general point to consider is that the global averages reported by Legatum Institute are overestimated as they are based on data from countries that are currently included in the rankings. Incidentally, countries that are left out are the ones that would potentially rank the worst. For instance, out of 32 countries that were for the first time included in the survey in 2012, only 1 is ranked among the top 20, while 11 are in the bottom 20.

It will be interesting to observe Georgia’s progress over time in Legatum Prosperity and other indices. Even more importantly, however, I hope that Georgia will indeed become a prosperous country where people trust each other and can rely on each other’s help, financially and otherwise. If that will be the case, we will not have to worry about any global indices. Until then, however, such indices help evaluate our progress and design better policies.


About the author:
Giorgi Papava belongs to the very first cohort of ISET graduates, the class of 2008. After graduating from ISET he decided to continue his education abroad; currently he is a Ph.D. student at the University of Chicago, USA. He has always remained an active member of the ISET community and continues to contribute to the school’s academic and extracurricular activities.

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Guest - Juan Echanove on Tuesday, 11 December 2012 20:19

Excellent analysis, indeed, which I largely endorse.

Just an important issue to mention: for reaching economies of scale in agriculture, what is needed is to consolidate production , which is not exactly the same as ' to consolidate land'. Land is just one factor of production (and actually land size is not the single most significant element to ensure production...not in modern agriculture anymore!...soil quality, technologies, aces to water are much more significant factors to increase yields)


Actually, land is the most difficult production factor to 'consolidate' (I.e. increase by aggregation) due to (a) cultural factors (and this not only applies to post soviet countries...every farmer in the world wants to have his/her very own parcel of land belonging only to him!) , (b) practical factors (you need a sophisticated land market in place, which will only be available in Georgia once there is cash in the countryside flowing, so some farmers can actually acquire the land) (c) economic factors; When the farmer is not owning the land he works, but it belongs to some coop or other similar structure, efficiency goes down (there is overwhelming evidence of this) because he will tend to think that he is not personal responsible for the production any more -he actually become an 'employee' , not an small business men.It is land what makes a farmer an farmer. he looses the land, he is not farmer anymore.

But, the good news is that all other means of production can be consolidated...and the farmer will remaining a farmer! I.ee.g. (1) joint acquisition of inputs (seeds, fertilizers, feed,,,,,,) or services (mechanization, artificial insemination, training..) or 2) joint commercialisation. Doing the first, farmers reduce production costs, doing the second, farmers increase quality and quantity of production, and thus, income.

But the button line of the article is obvious: Without equity high rates of growth are just impossible to maintain in the long run.And equity, in Georgia, means largely investing in the half of the population which is not in the market economy and relays only in the little garden production of the plot to survive.

This is all to say that the ENPARD will NOT promote production coops, but service and marketing coops....which a very significant distinction

Juan Echanove

Excellent analysis, indeed, which I largely endorse. Just an important issue to mention: for reaching economies of scale in agriculture, what is needed is to consolidate production , which is not exactly the same as ' to consolidate land'. Land is just one factor of production (and actually land size is not the single most significant element to ensure production...not in modern agriculture anymore!...soil quality, technologies, aces to water are much more significant factors to increase yields) Actually, land is the most difficult production factor to 'consolidate' (I.e. increase by aggregation) due to (a) cultural factors (and this not only applies to post soviet countries...every farmer in the world wants to have his/her very own parcel of land belonging only to him!) , (b) practical factors (you need a sophisticated land market in place, which will only be available in Georgia once there is cash in the countryside flowing, so some farmers can actually acquire the land) (c) economic factors; When the farmer is not owning the land he works, but it belongs to some coop or other similar structure, efficiency goes down (there is overwhelming evidence of this) because he will tend to think that he is not personal responsible for the production any more -he actually become an 'employee' , not an small business men.It is land what makes a farmer an farmer. he looses the land, he is not farmer anymore. But, the good news is that all other means of production can be consolidated...and the farmer will remaining a farmer! I.ee.g. (1) joint acquisition of inputs (seeds, fertilizers, feed,,,,,,) or services (mechanization, artificial insemination, training..) or 2) joint commercialisation. Doing the first, farmers reduce production costs, doing the second, farmers increase quality and quantity of production, and thus, income. But the button line of the article is obvious: Without equity high rates of growth are just impossible to maintain in the long run.And equity, in Georgia, means largely investing in the half of the population which is not in the market economy and relays only in the little garden production of the plot to survive. This is all to say that the ENPARD will NOT promote production coops, but service and marketing coops....which a very significant distinction Juan Echanove
Guest - Giorgi Balakhashvili on Wednesday, 19 December 2012 13:26

The post is very interesting, the attempt to evaluate the propensity level in Georgia is welcomed for comparison with the rest of the world, the numbers are somewhat questionable. From the very first look at the global average numbers I would dought about some of them (for instance the global average of attendance of a place of worship 46.6%). My guess is that for Georgian case the participants of interviews were insufficiently informed about their real coverage and meanings.

P.S. the link to the Propencity website does not work because of incorrect URL address, please use http://www.prosperity.com/ instead of http://www.iset.ge/blog/www.prosperity.com

The post is very interesting, the attempt to evaluate the propensity level in Georgia is welcomed for comparison with the rest of the world, the numbers are somewhat questionable. From the very first look at the global average numbers I would dought about some of them (for instance the global average of attendance of a place of worship 46.6%). My guess is that for Georgian case the participants of interviews were insufficiently informed about their real coverage and meanings. P.S. the link to the Propencity website does not work because of incorrect URL address, please use http://www.prosperity.com/ instead of http://www.iset.ge/blog/www.prosperity.com
Guest - Admin on Wednesday, 19 December 2012 13:34

Thank you for pointing out the link mistake!

Thank you for pointing out the link mistake!
Guest - George Papava on Thursday, 20 December 2012 05:36

Thanks Gio for your interest.

Just to clarify on some of your comments:

I checked the value for Global Average of attending the place of worship and it is quite high mostly in African countries, South America and India. In general I doubt that the global average values will be off significantly.
Georgian numbers also seemed mostly reasonable except you know I trust you more than any Bank in the world :).

Thanks Gio for your interest. Just to clarify on some of your comments: I checked the value for Global Average of attending the place of worship and it is quite high mostly in African countries, South America and India. In general I doubt that the global average values will be off significantly. Georgian numbers also seemed mostly reasonable except you know I trust you more than any Bank in the world :).
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