Rebooting the Bureaucracy in Georgia

Note: This article is an abridged version of a longer historical case study produced by Innovations for Successful Societies, a research program at Princeton University. In light of the recent scandal surrounding the justice system in Georgia, we encourage readers to check out Tom De Waal’s story on the latest events.)

Just months after the 2003 Rose Revolution (see photo) that swept Mikheil Saakashvili’s movement to power, a team of new officials attempted to remake the Georgian government, reduce corruption, and improve transparency and efficiency. Youth largely defined much of the new government: The charismatic 36-year-old Saakashvili filled his cabinet with recent college graduates who had supported peaceful demonstrations against former President Eduard Shevardnadze’s regime. The revolutionaries campaigned on an anti-corruption platform, and after winning the presidential and parliamentary elections, the new president and his United National Movement (UNM) party believed they had a mandate to dismantle the government and start anew.

Saakashvili looked for a clear departure from the practices of the previous regime. Konstantine Vardzelashvili, the new deputy minister of justice, recalled: "We knew what we didn’t want to have and we understood well the reasons that made the previous system fail. Our strategy was … to build from scratch. Limited bureaucracy and simplified procedures were at the core of our approach." In the early months of 2004, under the direction of Saakashvili and Prime Minister Zurab Zhvania, an opposition leader and past speaker of Parliament, ministries worked to tackle the corruption that had long characterized everyday interactions between government officials and ordinary citizens.

Saakashvili and Zhvania identified corruption as an impediment to the growth of private industry; their goal was to get Georgia’s economy back on its feet. They sought the advice of international donors on how to reform the civil service, and at the same time, searched for someone to coordinate economic reforms. The man who came to their attention was Kakha Bendukidze. Bendukidze, a businessman of Georgian descent who had made a small fortune while living in Russia, was known for his outspoken views: He favored economic liberalization at a time when Vladimir Putin sought to increase state influence over the private sector. His economic principles aligned with the vision of the new government; Bendukidze agreed to join the cabinet as minister of economic development.

The new government had to confront the legacy of the Shevardnadze government. Ministries and departments were disorganized. They had minimal accountability and unclear responsibilities that overlapped. In the decade that followed Georgia’s independence from the Soviet Union in 1991, the country endured an economic crisis. GDP per capita declined from US$1,611 in 1990, to $517 in 1994, and remained stagnant for the rest of the decade. As private sector employment fell, the government became the employer of last resort. Because of high unemployment, the Shevardnadze government refused to reduce the size of the civil service despite a weak revenue base. With poor monitoring, the central government was unable to determine how many civil servants it employed, much less hold its public institutions accountable. In 1998, Georgia’s government employed 133 of every 1,000 citizens, according to the International Labor Organization. (By comparison, for that same year, Ireland, a similar-size country, employed 78 public servants for every 1,000 citizens.)

The government’s weak revenue base meant salaries were low — some staff members earned as little as 30 Georgian lari (about $15 at the time) per month — driving civil servants to supplement their incomes with bribes. "Corruption was the alternate budgetary system for the country," said Giorgi Vashadze, who became head of the Civil Registry Agency. Transparency International rated Georgia 124 out of 133 countries in 2003. Although the government’s dense network of licensing agencies (for automobile emissions, food safety, construction permits) served little regulatory function, officials exacted payments from citizens in return for certifications, and pocketed the money. In 2003, the government succeeded in collecting only 35 percent of the levies, according to the Ministry of Finance. Mismanagement, poor record keeping, bribes, complex regulations, and lack of enforcement all undermined revenue collection. Because tax inspectors were as poorly paid as other civil servants, many diverted the money they collected into their own pockets. The government was caught in a downward spiral.

Saakashvili had the political power to enforce his policies: In February of 2004, Parliament had passed crucial legislation with little debate, significantly increasing the president’s powers. The president had the authority to reorganize the government and dismiss Parliament if legislators failed to approve a budget after three months. (Furthermore, under such circumstances, the president could approve the budget by his own decree.) The same legislation expanded the power of the prime minister to appoint almost all cabinet members.

There was a growing debate among political factions on how to structure employment for the civil service. One side favored a career-based civil service, advocating a clear separation of political appointees and professional civil servants to ensure that civil servants maintain institutional memory regardless of political changes in the cabinet. The other side wanted greater ministerial control, based on contractual employment of civil servants. Bendukidze pushed for the latter model, looking to reduce the size of government by privatizing many functions and employing the remaining workers under contracts. He argued that the job security of a career-based civil service would lead Georgia back down the path of corruption and nepotism.

Bendukidze developed a policy of economic reform that emphasized deregulation, privatization, and a strong market economy. He slashed his ministry’s staff by two-thirds, and moved to establish short-term, contract-based employment to increase managerial flexibility and control. During the first few months, the new leaders moved quickly, capitalizing on the momentum of the recent revolution, knowing that the window of opportunity for significant changes might be short. Bendukidze’s influence grew during that first year. Cabinet members respected his success as an international businessman, his rhetorical skills, and his strong personality.

At the end of 2004, Saakashvili decided that Bendukidze’s approach was the best for public sector reform, and put him in charge of a new unit, the Office of the State Minister for Reform Coordination; It would act as an umbrella organization for changes in the structure and size of the government during the next three years. Bendukidze recruited young and relatively inexperienced staffers — people willing to disrupt traditional ways of doing things. Each ministry would design and implement its own reforms, and Bendukidze’s office would help to synchronize policy objectives and principles. Ministries that performed well during the first few months of the transition received greater autonomy, while underperforming ministries worked closely with Bendukhidze’s staff to ensure that their strategic plans were consistent with the government’s overarching policies. 

In related efforts to reduce opportunities for corruption, the staff of each ministry was cut significantly. In the first year alone, the government laid off 40,000 civil servants; in many cases the government pressed many officials to submit letters of resignation, to avoid legal complications. Precisely because Saakashvili had consistently called for such sweeping changes during the lead-up to the revolution, the wholesale dismissals came as little surprise to the public.

The overhaul of ministerial staff began at the highest levels — a clear assertion that the old way of doing business was no longer tolerated, and that no corrupt official was immune to investigation. Many well-known officials were detained and prosecuted on charges of corruption. Plea bargaining became common, to reduce the load on the prison system. Many officials agreed to pay fines in exchange for having charges dropped, and dozens of mid-level officials resigned in order to avoid prosecution. Prominent international organizations were concerned about the widespread use of plea bargaining. The practice allowed offenders to buy their way out of prison, and alternatively, it could be used arbitrarily for political reasons.

Although civil servants who lost their positions could reapply, many could not meet the new skill and testing requirements. Privatization and international investment created private-sector opportunities for many of those who lost their jobs, but unemployment remained above 12 percent during the first three years of Saakashvili’s term. There was no set procedure for these personnel moves; many in the new government later conceded they had made mistakes by eliminating capable staffers.

In order to eliminate overlapping responsibilities, Saakashvili and Zhvania reduced the number of ministries from 18 to 13, identifying redundant functions and recommending consolidations. (For example, the government disbanded the Ministry of Infrastructure and shifted some of its functions to the Ministry of Economic Development; The Ministry of Internal Affairs assumed many of the responsibilities of the Ministry of State Security, and so on.) The Ministry of Justice’s subordinate agencies, the Civil Registry Agency and the Public Registry (which administered the registration of personal identification documents, land, property rights, and titling), were examples of success in personnel management. Public opinion surveys had previously identified document processing as the most corrupt function of government. One advantage that both agencies had over other government operations was that they generated their own revenue; their semi-autonomous status gave them greater flexibility to overhaul ineffective systems, replace corrupt personnel, and improve service delivery. 

Changes in the operations of tax and customs agencies significantly increased revenues. To simplify Georgia’s complex tax structure, the government slashed the number of taxes by two-thirds. For the first three years the new tax code included a flat-rate income tax of 12 percent, a 20 percent value-added tax (VAT), and a 10 percent tax on dividend and interest income. The changes created an environment that was friendly to business and foreign investment. From 2003 to 2007, tax revenue as a percentage of GDP increased to 23 percent from 15 percent, according to the Ministry of Finance. Tax reform this did not work smoothly throughout the country, however. The western region of Ajaria on the Black Sea coast, which was controlled by independent strongman Aslan Abashidze (who subsequently collected lucrative customs duties on oil), was one confrontation point with central control in Tbilisi.

Recognizing that higher salaries were necessary to deter bribery, the government took steps to raise the pay of public servants. Saakashvili courted international donors by trumpeting Georgia’s democratic values. (For example, the Open Society Institute cooperated with the UNDP to fund a salary-supplement program.) Civil servants’ salaries increased significantly: Even though the civil service shrank dramatically, the amount of money allocated for salaries went up by 132 percent between 2004 and 2007. Overall, the state budget increased from US$350 million before the revolution, to US$6 billion in 2006, corresponding with consecutive years of GDP growth of 9.5 percent in 2004, 9.3 percent in 2005, and 8 percent in 2006.

The transition process was not without faults. Saakashvili frequently shuffled cabinet members in the first three years. As a result, institutional memory was short and internal operations were often poorly organized. Some ministers held their positions for only a few months before they were transferred, and new ministers typically brought deputy ministers who had their own ways of doing things. Not surprisingly, agencies that experienced fewer turnovers achieved greater success in implementing long-term strategies. In addition, the contract-based model failed to retain many of the young, talented professionals who had joined the government in the exuberance that followed the revolution; their departure left many ministries without long-serving staffers to maintain consistency in policy implementation.

Saakashvili had varied reasons for constantly shuffling ministers. He replaced some for underperformance, and he often moved competent ministers to other jobs where their skills were needed. From a political standpoint, the frequent high-level transfers limited the power of potential rivals by restraining ministers from establishing their own fiefdoms. But cabinet shuffles kept many ministries off-balance and added to the challenges of implementing sustained reforms.

In 2007, political crosscurrents began to slow Georgia’s reform momentum. In September, former Defense Minister Irakli Okruashvili, who had resigned following allegations of corruption, accused Saakashvili of having ordered the murder of a prominent businessman. When Saakashvili had Okruashvili arrested, protests erupted. In November, Saakashvili sent riot police to clear the protesters from the streets, and violence broke out. Police shut down the opposition television station, and Saakashvili declared a state of emergency.

The episode tarnished the image of Saakashvili’s government, and the rapid nature of the reforms slowed considerably in the months that followed. Bendukidze became a target of criticism as Saakashvili’s detractors claimed that aggressive privatization facilitated foreign (particularly, Russian) ownership of formerly state-owned enterprises. As pressure mounted, Saakashvili again shuffled his cabinet. In January 2008, he eliminated Bendukidze’s office and gave him a role with less public visibility. The global recession — and the August 2008 war with Russia — diverted the government’s focus from structural reforms in the civil service. Many Georgian officials said that civil service reform was simply a lower priority for the president when compared with fighting corruption and fixing the economy.

In liberalizing the Georgian economy and transforming the government into a leaner, less corrupt organization, Saakashvili’s reform team made impressive gains. In 2010, Transparency International found that 78 percent of Georgians felt that corruption had decreased. Increased transparency at the lower levels of government improved the business climate: The World Bank-IFC Doing Business Report for 2012 rated Georgia 16 in the world for ease of doing business, up from 112th six years earlier, due to the simplified tax and customs policies. Revenue from economic gains paid higher salaries that provided additional motivation for civil servants.

The reformers were convinced that speed and magnitude were crucial for success. In the absence of extensive planning and coordination, influence and personality in many ways became the driving forces behind the reforms. Indeed, Bendukidze’s deputy Lejava said Georgia’s success could be attributed to the dedication and resolve of its reformers. "If you are not prepared to really change things and you don’t believe in the change, then you have excuses," he said. "People generally don’t trust those leaders who themselves have no confidence in their ideas."

The restructuring of Georgia’s public sector in the aftermath of the Rose Revolution offers an example of a young cohort of reform-minded leaders attempting to reboot a stagnant and corrupt bureaucracy by tearing it down and starting anew. The changes were sweeping and early results were impressive. Saakashvili’s government relied on the momentum from the revolution to push through significant changes that ultimately increased the power of the executive branch. Such drastic cuts would not have been possible without the president’s political capital in the wake of the revolution and his subsequent consolidation of power. In more recent years, however, the country’s leaders face the challenge of institutionalizing these reforms, building a strong and stable team of ministers that can sustain consistent progress, and diffusing the increasingly centralized power and influence that fueled the initial fervor after the revolution.