Monday, December 29, 2014

Georgia in a turbulent world: 2014 in review

Calling 2014 turbulent for the world seems almost euphemistic. The world witnessed renewed Russian revanchism with the war in Ukraine and annexation of Crimea, the emergence of a highly successful militant Islamic organization, Islamic State in Syria and Iraq, and the persistently tense situation in Israel erupted into another war between Israelis and Palestinians. Not only did the world see conflict, but it also witnessed the outbreak of the Ebola epidemic in West Africa and electoral gains for the far right and left in Europe. Notably, Turkey continued on its path which has swung against secularism and democracy in recent years.

In contrast, Georgia, a country known for its prolonged territorial conflicts and volatile politics, was relatively calm in 2014. This, though, is not to say that the events which shook the world in 2014 did not reverberate through Georgia. Quite to the contrary, the Ukraine crisis resonated in Georgia and the conflict in Syria holds consequences for the country. Georgia’s domestic politics, while tame in comparison to the recent past, also had unexpected and difficult moments.

The crisis in Ukraine reminded the Georgian public of the threat posed by Russia, and for many it was also a reminder of what could have happened in 2008. As a CRRC blog post pointed out in September, Georgians’ perception of Russia as a threat increased during the crisis. Moreover, the crisis in Ukraine hastened the signing of Georgia’s long sought after Association Agreement with the European Union. While the Agreement was originally scheduled to be signed no later than August 2014, after the Ukraine Crisis, the European Union moved up its signing to no later than June 2014, ultimately culminating in the signing on June 27th.

One of the most unexpected outcomes of the Ukraine crisis is the proposed appointments of a number of former Georgian United National Movement officials to the Ukrainian Cabinet of Ministers. Former Minister of Health and Social Affairs of Georgia, Aleksandre Kvitashvili, and former deputy Minister of Internal Affairs, Eka Zguladze, have taken up the same posts in the Ukrainian government. Notably, ex-president Mikheil Saakashvili turned down the Vice Premiership of Ukraine to keep his Georgian citizenship. While the proposed appointments have not been received with absolute unanimity from the governing Georgian Dream Coalition, Foreign Minister Tamar Beruchashvili has noted the importance of maintaining good relations with Ukraine.

The Ukraine crisis was not the only global event to reverberate in Georgia in 2014. The war in Syria and Iraq, which has resulted in massive loss of human life and mass displacement, also touched Georgia. After the start of the conflict, Georgia’s previously ultra-liberal visa regime made it relatively easy for Syrians to settle in the country. Notably, some ethnic Abkhaz Syrians fled to Abkhazia from the conflict. This year though, a number of young people from the Pankisi Gorge in northeastern Georgia have joined the war in Syria and Iraq, becoming not only members, but also high level commanders of the militant Islamic organization, Islamic State.

On a different note, Georgia’s Euro-Atlantic integration took another step forward this year with agreement on a “Substantive Package” with NATO. This package was given to Georgia to increase interoperability with NATO countries, while also serving as a substitution for a Membership Action Plan which in the context of the Ukraine crisis and the unsettled conflicts in Abkhazia and South Ossetia, may have provoked Russia’s ire.

In what some commentators have viewed as a response to NATO’s substantive package, Abkhazia and Russia signed a treaty, including a mutual defense clause similar to Article 5 of NATO’s Washington Treaty. Both Abkhazians and Georgians have heavily criticized the treaty. The Georgian government has described this treaty as a further step in Russia’s occupation of Abkhazia, and Abkhazians have criticized the treaty for giving up too much autonomy. While the first draft of the treaty was titled “Agreement on Alliance and Integration” it was later changed to “Agreement on Alliance and Strategic Partnership” (emphasis added) as a result of Abkhaz protests. Significantly, the Kremlin-favored candidate Raul Khajimba was elected to the de-facto presidency of Abkhazia, following a June revolution in the breakaway republic.

Speaking of entirely domestic events, in 2014, intolerance again manifested itself in Georgia with a number of islamophobic and homophobic events. The most extreme example of islamophobia this year was when residents of Kobuleti decapitated a pig and nailed its head to the front door of a Muslim boarding school in protest of the schools opening. On May 17th, the physical violence of 2013 protests against the International Day Against Homophobia and Transphobia was avoided since the anti-homophobia rally was cancelled due to the fear of repeated violence. Instead, the Georgian Orthodox Church along with its supporters celebrated a “day of family values” on May 17th, a clear act of symbolic violence.

The political scene was also somewhat turbulent. The Georgian Dream Coalition experienced its first serious crack with the dismissal of Irakli Alasania from the Defense Minister post in November and the subsequent withdrawal of the Free Democrats from the coalition. Notably, the public’s appraisal of the Georgian Dream Coalition’s performance has decreased in 2014. While in November 2013 50% of the population rated their performance as good or very good, only 23% of the population reported the same in August 2014. The municipal elections in 2014, which demonstrated a high level of competition compared to many elections in the past, also held a number of surprises. Importantly, the newly emerged Patriotic Alliance garnered nearly 5% of the vote nationally and forced a second round in gamgebeli elections in Lanchkhuti.

Elections and coalition politics aside, an event in Georgia which remains unsettled to this day is the charging of Mikheil Saakashvili with a number of crimes he allegedly committed while in office. Saakashvili has denied any wrong doing and accused the current government of a political witch hunt. The government has claimed that they are attempting to demonstrate that everyone is equal before the law and that justice, which was precarious during UNM rule, has returned to Georgia.

While the world shook in 2014, Georgia mainly felt the weaker aftershocks of world events in 2014, and although Georgia experienced crises in miniature, it has navigated domestic issues with a relative grace. Still, the crises in Ukraine and Syria left their mark on Georgia, and will continue to impact Georgia in 2015.

Monday, December 22, 2014

Does public opinion accurately gauge government performance in the South Caucasus?

Robert Putnam’s 1993 work Making Democracy Work: Civic Traditions in Modern Italy marked a seminal moment in the development of institutionalism. Putnam’s exhaustive study of the relationship between the governed and governing in the Italian regions contained the discovery that public opinion provides an accurate picture of actual government performance: “The Italians’ gradually increasing satisfaction with the regional governments … corresponded to real differences in performance,” and in each region Putnam’s measurement of performance was “remarkably consistent with the appraisals offered by the regional attentive public and by the electorate as a whole.” While Italy was the focus of his study, Putnam’s findings can be applied broadly as he draws identical conclusions across regions with disparate social, economic, and historical conditions. Can his insight on the relationship between public opinion and government performance be transposed onto any or all of the countries of the South Caucasus?

The three states comprising the South Caucasus – Armenia, Azerbaijan and Georgia – are characterized by varying degrees of governmental effectiveness. Public opinion data from the CRRC Caucasus Barometer survey (CB) also shows differing levels of trust toward government in each country. This blog post asks the following question: does public trust in government institutions in the South Caucasus countries reflect the actual performance of government? Drawing on CB data as well as the Government Effectiveness dimension of the World Bank’s Worldwide Governance Indicators project (WGI), this blog post finds an apparent mismatch between levels of public trust in state institutions and measures of actual performance.

The populaces of the three South Caucasus states demonstrate divergent attitudes toward the institutions that make up government. Azerbaijanis report more positive views of government, reporting relatively high levels of trust in the Parliament, President, and Prime Minster and ministers. Georgians are less trusting of the Parliament, Prime Minster and ministers, but demonstrate more trust in the courts, the ombudsman and political parties. While it is not possible to say with certainty whether the average Georgian or Azerbaijani has more trust in government institutions overall, it does seem apparent that Armenians demonstrate the least trust. In 2013 residents of Armenia indicated the highest levels of distrust on almost every relevant CB question. The only incidence in which Armenians demonstrated levels of trust slightly higher than a neighboring country was when asked how much they trust or distrust their country’s local government. 35% of Armenians indicated trust, compared to 28% of Georgians.

Note: This graph only displays the percentage of people who reported distrust in the respective institution. The original question asked, “Please tell me how much do you trust or distrust … [institution]?” Values were re-coded from a 10-point scale used in the questionnaire to the three-point scale used in this text, with original values 1-4 corresponding with the response “distrust” (shown here), 5-6 being “neutral,” and 7-10 corresponding with “trust.” While the graph displays data from 2013 only, this blog post drew on data from 2008 onward. 

In attempting to answer the central research question, this blog post investigates whether the greater propensity to trust state institutions appears alongside higher WGI scores for government effectiveness in each country. While a comprehensive model of governmental effectiveness is the task of a deeper, more comprehensive analysis, this blog post relies on the Government Effectiveness aggregate of the WGI. This metric is intended to measure “the quality of public services, the quality of the civil service and the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government’s commitment to such policies.” The indicator is aggregated from 15 individual indicators of governmental effectiveness including the World Bank Country Policy and Institutional Assessment, Economist Intelligence Unit, Bertelsmann Transformation Index and Gallup World Poll.

Provided that the findings of the index paint an accurate picture of the subject at hand, it brings up mixed results with regards to Putnam’s aforementioned conclusion. In each year 2006-2013 Georgia’s score bested those of the other two countries in question, thus the relatively high levels of trust observed in Georgia appear alongside regionally impressive scores for governmental effectiveness. As for Azerbaijan, it scored the lowest of the three South Caucasus states in every year in which scores were awarded. In 2008, the year corresponding to Azerbaijan’s lowest score on the WGI, 87% of Azerbaijanis reported trust in the President and 52% in the Parliament, both measures being higher than those found in Georgia and Armenia (the first being much higher), even though Azerbaijan received a WGI score of less than half of either of its neighbors. Thus it does not appear that public opinion accurately reflects reality in the case of Azerbaijan.

Note: These scores represent percentile rankings. Not all of the 15 indicators used in the Government Effectiveness metric are available from each country in every year. For example, in 2013 a total of 11 indicators were used to compile Armenia’s score, compared to 10 for Georgia and 9 for Azerbaijan.

When observing the case of Armenia, viewing CB findings in relation to the WGI index indicates possible dissonance between public opinion and governmental effectiveness. While Armenia scored slightly lower than Georgia on the WGI each year from 2006 and 2013, CB results show that Armenians’ reported trust in government institutions has been much lower than that in Georgia. This could indicate that Armenians are overly pessimistic about the performance of their government, that Georgians are overly optimistic, or a combination of both. In each case, a possible explanation is that Georgia’s scores on the WGI have almost invariably trended upward, starting at a trough of 39.5 in 2005 before peaking at 69.9 in 2012. Armenia, on the other hand, has seen only modest and uneven gains, with public trust in Parliament, the President and the executive government each declining over the same period. Georgian optimism may stem from the appearance of progress, while Armenian pessimism could be the product of a general malaise in the performance of government.

On the whole, it appears that Putnam’s observation cannot be applied neatly to the three states of the South Caucasus. The Azerbaijani public demonstrated the highest levels of trust in almost every governmental institution listed on the CB, even as the country received the lowest scores on the WGI. Georgia scored the highest of the South Caucasus states on the WGI, while public trust in government appeared to be generally lower than in Azerbaijan. Trust in Georgia was significantly higher than in Armenia despite scores on the WGI being only slightly higher. Thus, viewing Georgia and Armenia in relation to one another also appears to uncover a mismatch between perception and reality.

To gain more information on public opinion in Armenia, Azerbaijan and Georgia, please visit the CRRC regional website or refer to the CRRC’s online data analysis tool.

Monday, December 15, 2014

How does job satisfaction vary by job profile?

A number of fields, including economics, sociology and psychology, study issues related to job satisfaction. Using CRRC Caucasus Barometer (CB) 2013 data, this blog post looks at how job satisfaction differs by job profile.

For the first time in 2013, CB used the International Labour Organization’s International Standard Classification of Occupations (ISCO-08) to measure the status of respondents’ jobs (referred to as “job profile” for the rest of this blog post). The level of job satisfaction was measured using the following questions:

  • “To what extent do you agree or disagree with the statement: ‘I am doing something that many people need?”
  • “Overall, how satisfied or dissatisfied are you with your job?”
  • “To what extent do you agree or disagree with the statement: ‘I feel valued at work?”

According to CB 2013 data, Georgians with different job profiles report different levels of perceived importance for their job. Georgians holding a high profile job are nearly twice as likely (75%) as Georgians holding low profile jobs (40%) to think that they are doing something that many people need.

Note: Suggested answer options for the job profile question included Manager; Professional; Technician / Associate professional; Clerical support worker; Service / Sales worker; Skilled agricultural / Forestry / Fishery worker; Craft and related trades worker; Plant and machine operator / Assembler; Elementary occupation; and Armed forces occupation. Each of these categories suggests a different level of qualification, payment and prestige. For this blog post, the options “Manager” and “Professional” were combined into the category ”high profile occupations,” while the other categories were grouped into the category low profile occupations.” Options “Don’t know” and “Refuse to answer,” relevant for less than 3% of the employed, were excluded from the analysis. It should be mentioned that the findings presented in this blog post only apply to Georgians who reported having a job at the time of the interview (39% of the sample), and that the ratio between high and low profile occupations is not equal (23% and 77%, respectively).

Similarly, the assessments of job satisfaction also differ by job profile. The share of employed Georgians who report being satisfied with their job is greater among high profile job holders.

Following the same logic, the number of respondents who completely agree with the statement “I feel valued at work” is nearly twice as high among high profile job holders (47%) than among low profile job holders (25%).

Job satisfaction varies by job profile among employed Georgians. The charts above indicate these differences: the employed who believe they do an important thing for others and feel valued at work tend to have high profile jobs (managers, professionals). For more data on job profiles in Georgia and the South Caucasus check out the CRRC’s Online Data Analysis tool, here.

Monday, December 08, 2014

State capacity in the South Caucasus: How do you measure how much the state can do?

State capacity is a concept which has gained wide interest from political scientists in recent years as an important concept for economic development and regime classification, yet it still lacks agreed upon definitions and indicators. Its definitions vary, with different scholars highlighting different aspects of the concept based on their angle on the subject, but some definitions of state capacity are broader than others. A good example of a broad definition of state capacity is “the state’s ability to implement public policy” (Rogers and Weller, 2014).

The lack of agreement on indicators and definitions is due to the inherent multidimensionality of the concept. This multidimensionality is well exemplified by Fjelde and De Soya’s 2009 article which identifies state capacity as a state’s ability to coerce, co-opt, and cooperate with society. While the authors provide indicators for these capacities, their schema seems more to describe a state’s relationship and interactions with citizens rather than state capacity in and of itself.

The fact that different scholars have theorized different capacities including fiscal capacity, bureaucratic-administrative capacity, and coercive capacity as component parts of state capacity further illuminates the multidimensionality of the concept. This blog post looks at three of the many possible indicators which could be used to gauge state capacity in the South Caucasus: revenue excluding grants as a share of GDP for fiscal capacity, taxes on income, profit, and capital gains as a share of total revenues for bureaucratic-administrative capacity, and military expenditures as a share of central government expenditures for coercive capacity. So, how strong are the South Caucasus states?

Fiscal capacity is considered one of the most important state capacities by most authors as without the financial means to accomplish a stated policy, that policy will likely never be realized in practice. The graph below presents World Bank data for state revenue excluding grants as a share of GDP and shows how much the South Caucasian governments collect from their societies. What appears most prominently is that Azerbaijan’s fiscal capacity far outstrips that of Georgia and Armenia, which exhibit similar levels of extraction. It is important to keep in mind here that revenue consists not only of taxes but also funds collected through fines, fees, and resource rents. The latter are particularly important for Azerbaijan as the government received 54% and 65% of state revenues from oil and gas in 2005 and 2011 respectively. Without its oil wealth, Azerbaijan would collect significantly less in revenues.

Definitions of bureaucratic-administrative capacity often center on a state’s ability to collect and manage information (Hendrix, 2010). This capacity is central to a state’s ability to act and likely enables a state to have fiscal and coercive capacity. For example, if a state is unable to gather information on potential militants within its territory it will be unlikely that it can coerce or co-opt them into compliance. In order to successfully cooperate with society, information gathered must be channeled into usable and comprehendible forms which enable the government to act.

Income, profit, and capital gains taxes as a share of total taxes are a useful indicator of bureaucratic-administrative capacity. While at first glance it may be taken to indicate fiscal capacity, income taxes are more closely related to bureaucratic-administrative capacity, because this form of taxation is both a relatively difficult and relatively desirable tax to collect (Rogers and Weller, 2014). The desirability of income tax stems from the fact that it generally provides a revenue stream which does not drastically fluctuate. In most circumstances, however, it is a relatively difficult tax to collect (though the system of income tax payment by employers has lowered this difficulty in Georgia, Transparency International Georgia has noted that non-compliance with income tax remains problematic). As such, the share of income tax as a percentage of total state revenues proxies how well a state can extract from and manage information on its population. The graph below presents taxes on income, profits and capital gains (two other taxes which are similar to income tax) as a percentage of total taxes collected. The graph demonstrates that Georgia’s bureaucratic-administrative capacity on this measure is higher than that of Armenia or Azerbaijan. While Azerbaijan’s relative weakness in this sector is likely caused by hydrocarbon revenues, Georgia’s relative strength likely comes from the reforms in tax collection and enforcement, which started with the tax code passed in 2005.

A final important capacity of state is its ability to coerce its population; without the capability to put down paramilitaries or suppress violent groups, a state can quickly devolve into chaos. Taking military expenditures as a share of central government expenditures as an indicator of coercive capacity, the graph below gives a possible indication of coercive capacity. This indicator, though, also likely describes the changing relative importance of coercion to each state over time, as one would expect the share of total expenditures dedicated to military expenditures to increase if security issues became relatively more important – hence Georgia’s relatively high expenditures in 2008, which are largely a result of the 2008 August War with Russia. When looking at the figures, it is important to note that Azerbaijan’s budget is significantly larger than either Georgia’s or Armenia’s and as such has a much larger absolute level of coercive capacity.

This blog post has looked at three of the many possible indicators of state capacity. For readers interested in the subject, this 2010 article by Cullen Hendrix goes through a wide variety of indicators, although the data set used does not include any of the South Caucasus countries.

Have any ideas about other indicators? Join the conversation on Facebook or at CRRC-Georgia’s office on December 10th for the Works-in-Progress talk: State/party capacity and constraints on state action: Operationalizing and indexing state capacity in Georgia and Armenia.

Thursday, December 04, 2014

SME Performance in Georgia and Armenia: Part 2

As discussed in the first blog post of this series, the results of the CRRC Caucasus Barometer (CB) survey show that Georgians demonstrate higher levels of interpersonal and institutional trust than Armenians.  These types of trust are important indicators of social capital, which is often taken as a necessary condition for the presence of a robust, productive entrepreneurial class and small and medium enterprise (SME) sector. While Georgians express higher levels of trust in their fellow citizens as well as in formal institutions such as the judiciary and Parliament, economic data shows that the country’s SME sector suffers from a dearth of productivity. This blog post looks at survey data shedding light on economic conditions in Georgia and Armenia as well as policy research on the state of SMEs in each country, finding impediments to rural development and the high cost of financing to be potential causes for the relative lack of productivity by Georgian SMEs.

Productivity of the SME sector (defined as value added per employee) is significantly lower in Georgia when compared to Armenia. Emblematic of the lack of productivity in Georgian SMEs is the preponderance of small-scale agriculture. Many legally designated “small enterprises” are in fact subsistence agriculture proprietorships with little or zero cash turnover, a situation which Rudaz 2012 refers to as “entrepreneurship by default.” A report from the International Fund for Agricultural Development found that as late as 2005, 83% of rural households were dependent entirely on subsistence agriculture and that a “typical” rural household consumed 73% of what it produced. By 2013, however, the CB found that 59% of rural Georgians reported receiving household income from the sale of agricultural products, indicating an existence at least slightly above subsistence level agricultural production.  On the other hand, 27% of Georgia’s rural inhabitants reported no household income from salaries or sales of agricultural products. Rural Armenians are somewhat less likely to sell agricultural products (50% reported household income from this source), but more likely to receive salaries. However, 25% percent of rural Armenians responded “no” to their households having received income from either source. Thus one cannot decisively discern from the data at hand whether rural Armenians are more likely to receive cash income than rural Georgians.

The first blog post of this series determined that available measures of social capital appear to be insufficient to explain differences in SME productivity between the two countries. So, what are possible causes for the lack of productivity gains in Georgia’s SME sector? With regards to agricultural SMEs, a potential culprit mentioned in the previous installment of this series is the fragmentation of agricultural land, with the average private holding in the country being only 1.25 hectares. The consolidation of small plots into larger and more efficient commercial farms has been impeded by an inefficient system of land registration and poorly defined property rights. Restrictions on the purchase of agricultural land by foreigners and foreign-owned businesses have also precluded potentially productive investment in the sector. While the Constitutional Court struck down a law banning land purchases by foreigners in June, 2014, a new draft of the law will allow private foreign persons and foreign companies established in Georgia to purchase plots of up to 100 hectares. Fragmentation is a problem in Georgia, but it also bears mentioning that the average private plot in Armenia consists of 1.3 hectares, scantly larger than in Georgia. Land fragmentation appears to be an obstacle to the growth of Georgia’s SME sector, but it doesn’t appear to be a decisive one. 

As for palpable factors which may explain the lack of growth by both Georgia’s agricultural and non-agricultural SMEs, the difficulty of obtaining financing should not be overlooked. The average interest rate spread in Georgia (the difference between the interest paid on deposits and the interest charged on loans) is 11.3%, the highest spread of the former Soviet republics and significantly higher than the average spread of 7.3% in Armenia. This means that the cost of borrowing outstrips the incentive to save, with the result being that an entrepreneur in need of financing to buy land and equipment or hire employees is faced with very high borrowing costs. In Armenia, this problem occurs but on a smaller scale.

The high cost of financing stems in part from the lack of collateral held by SMEs, which discourages lending. Rudaz also reports the existence of a “law giving tax authorities the right to use the collateral of tax payers who owe money to fiscal authorities,” which allowed the tax authorities to seize the collateral of those owing back taxes. To be more specific, in cases in which a person has outstanding debts to both the tax authorities and a financial institution, the claims of the tax authorities take precedence. This interpretation was corroborated by Eka Gigauri of Transparency International Georgia. As a result, domestic financial institutions face higher financing costs when borrowing from abroad, and banks have become reluctant to accept collateral. There is also a general sentiment of political risk associated with Georgia; the country has a moderate-to-low credit rating of BB-, which hampers the ability of banks to procure external funding. These developments translate into higher borrowing costs for households and businesses.

To summarize, academic studies produced by Knack and Keefer (1997) and Bjornskov and Meon (2010) emphasize the importance of social capital on the success of entrepreneurship, and CB survey data show that Georgians exhibit significantly higher levels of social and institutional trust (which are among important indicators of social capital) than Armenians. Social trust is often taken as a necessary condition for economic growth. However, it is not a sufficient condition, as indicated by measurements of productivity (SME turnover per employee) being much higher in Armenia than in Georgia. This indicates that more palpable factors are inhibiting the growth of Georgia’s SMEs, with agricultural land fragmentation and the difficulty in obtaining financing being possible explanations. However, it must be conceded that none of the factors presented in this study, when viewed in a vacuum, appear sufficient for explaining the divergent performances of SME sectors in Georgia and Armenia. A more comprehensive study is necessary to reach solid conclusions.

For more information about public opinion in the South Caucasus, including data pertaining to social capital and the economic situation, refer to the CRRC online data analysis tool. If you have some criticisms, evidence or insights to add to the discussion, please feel free to contribute comments.

Thursday, November 27, 2014

SME Performance in Georgia and Armenia: Part 1

The CRRC Caucasus Barometer (CB) survey results demonstrate that Georgians exhibit relatively high levels of interpersonal and institutional trust when compared to their Armenian neighbors. Trust is an important component of “social capital,” which is widely perceived to be a necessary condition for a thriving entrepreneurial class and small and medium enterprise (SME) sector. Scholars of social capital such as Francis Fukuyama (1996) and Robert Putnam (1993) have written extensively on the effect of social trust on economic development, of which the growth of SMEs is important, finding a connection between trust toward fellow citizens and formal institutions and successful entrepreneurship. Other scholars such as Knack and Keefer (1997) assert that “if entrepreneurs must devote more time to monitoring possible malfeasance by partners, employees, and suppliers, they have less time to devote to innovation in new products or processes,” while Bjornskov and Meon (2010) express the view that “trust allows entrepreneurs, who move the productive possibility frontier forward through process innovation, to have more impersonal contacts and rely more on the market process.”

This two-part series of blog posts provides a comparative analysis of the productivity of respective SME sectors in Georgia and Armenia in the context of social trust. While Georgians report higher levels of trust in other people and in formal institutions than their Armenian neighbors (possibly indicating higher levels of social capital), the performance of SMEs in Georgia is unproductive in comparison, suggesting that factors other than trust may be more salient to entrepreneurial success. 

Before providing analysis it is important to consider the different official definitions of an SME in each country. According to the Ministry of Finance, the term “SME” in Georgia refers to any firm generating annual turnover of less than GEL 1,500,000 (roughly $850,000 at the time of writing), regardless of the number of employees. By contrast, the Armenian authorities do not take turnover into account and, rather, define SME by number of employees, with different standards by sector: in industry an SME employs up to 100 people, in education and energy up to 50 people, and in services up to 30 people. Despite differences in definition the share of the workforce employed by SMEs in either country is similar; 31% of Georgia’s employed persons work in the SME sector, slightly larger than the 25% figure for Armenia.

While employment levels are similar, value added by SMEs is relatively smaller in Georgia than in Armenia, indicating a comparative lack of productivity in Georgia’s SME sector (productivity is measured as value added per employee). In 2012 value added produced by Georgian SMEs accounted for only 9.6% of the country’s GDP, compared to 27% for Armenia. Measuring the productivity of workers in the SME sector using the equation SME value added/GDP ÷ number of employees in SMEs/number of employees nationwide, we are left with the following coefficients as measurements of productivity: 1.08% for Armenian SMEs and .31% for Georgian SMEs. While the Georgian SME sector employs a slightly larger proportion of the workforce, the relative contribution of each employee to the country’s GDP is only one-third that of the contribution of employees in Armenian SMEs.

Giorgi Tsikolia, director of Georgia’s Entrepreneurship Development Agency, spoke of the poor performance of Georgia’s SME’s: “SMEs demonstrate low productivity and competitiveness as well as low sophistication. In many cases companies have poor management and employees lack knowledge and relevant skills.” In short, Georgia has no shortage of start-ups, but it has a shortage of successful entrepreneurs. The development of the sector has been plagued by persistent problems: proprietorships and small firms lack the capabilities and incentives to grow. Farmers often fail to progress from subsistence activities to producing for exchange, and small proprietorships struggle to achieve the productivity gains needed to become thriving medium-sized enterprises.

Can measures of social trust be useful tools for explaining the relative performance of SMEs in Georgia and Armenia? The CB asks respondents the following question: “Would you say that most people in the country can be trusted, or that you can't be too careful in dealing with people?” While this question doesn’t tell the whole story about interpersonal trust, it is designed to measure bridging social capital, a condition especially important for economic performance. The responses show Georgians to be much more trusting than Armenians, with 29% answering that “most people can be trusted” compared to 15% of Armenians. More importantly, 33% of Georgians responded that “you can’t be too careful,” compared to 53% of Armenians (values were re-coded from a 10-point scale used in the questionnaire to a three-point scale used in this text, with original values 1-4 corresponding with the response “you can’t be too careful,” 5-6 being “neutral,” and 7-10 corresponding with “most people can be trusted”).

Trust in formal government institutions is another measure of social capital. While a comprehensive assessment of the level of institutional trust in either country is not possible here, the observance of select indicators can provide valuable insight. In 2013 CB asked residents of both countries to assess how much they trust or distrust their country’s court system; 22% of Georgians reported to “fully trust” or “somewhat trust” the courts, compared to 15% of Armenians. Furthermore, Armenians were much more likely to express distrust, with 53% responding that they either “fully distrust” or “somewhat distrust” the courts, compared to only 19% of Georgians. This indicator has significant implications for the success of SMEs, as trust in the legal system to protect private property and impartially mediate disputes is an important condition for entrepreneurs to undertake costly investments. CB also asks respondents how much they trust or distrust their country’s Parliament. In 2013, 29% of Georgians responded that they either “fully trust” or “somewhat trust” the national Parliament, while only 11% of Armenians gave the same answer. Georgians were also much less likely to distrust their Parliament, with 19% percent indicating “distrust” or “fully distrust,” compared to a full two-thirds of Armenians.

Looking at social and institutional trust in a vacuum, one would expect Georgia to have a more successful SME sector than Armenia, but the opposite is true. So, it appears that other factors present in Georgia hamper the productivity of SMEs. Academic studies by Rudaz 2012 and Welton 2012 find significant impediments from the difficulty individuals face obtaining financing and the fragmentation of agricultural land, problems determined to be more pervasive in the Georgian case. Given that Georgians report higher levels of interpersonal and institutional trust than Armenians, it appears that tangible factors may have more profound effects on the productivity of small and medium enterprises in Georgia.

While this piece overviews the performance of SMEs in Georgia and Armenia in the context of social capital, the second blog in this series will explore more tangible factors affecting the performance of Georgian and Armenian SMEs, including problems in agriculture and financial markets. For more information about public opinion in Georgia and Armenia, consult CRRC’s online data analysis tool.

Monday, November 24, 2014

Exploring Homophobia in Georgia: Part 5

This is the fifth and final blog post in a series analyzing the findings of CRRC-Georgia’s 2013 May 17 survey in Tbilisi and presents evidence-based policy recommendations which address the issue of widespread homophobic attitudes. The previous blog posts in this series can be found here: Part 1, Part 2, Part 3, Part 4.
As discussed in previous blog posts, the main statistical predictors of homophobia among Tbilisi adults are:
  • Sex, with males at a higher risk of having homophobic attitudes than females;
  • Level of education, with those with higher educational attainment being at a lower risk of having homophobic attitudes;
  • Tolerance and adherence to liberal values, with those not sharing these values being at a higher risk of having homophobic attitudes;
  • A perception that homosexuals are a threat to the country, with those believing that homosexuals endanger Georgia being at a higher risk of having homophobic attitudes.

These empirical findings provide crucial information for policy makers to plan policy intervention(s) aimed at decreasing the level of homophobic attitudes and promoting tolerance and respect for the rights of all minorities, including sexual minorities.

We recommend that targeted interventions are made in the legal and educational spheres. The former is important, because Georgia still lacks legal guarantees for the protection of rights of minorities and enforcement mechanisms to punish violations of those rights. This is especially evident for sexual minority rights. The widely debated anti-discrimination bill, initiated by the Government of Georgia in April, 2014, has caused a division of opinions in society, which, in part, was caused by protests emanating from the Georgian Orthodox Church and other religious organizations. Although the initial definition of the target group of those protected by this bill included sexual minorities and a new institution of “equality protection  inspector” was introduced (as well as fines for discriminating against individuals or entities), due to pressure from religious as well as some non-religious circles, the revised draft of the bill presented to  and passed by  Parliament was much softer than the original one and lacked crucial wording  defining concrete mechanisms for the protection of the rights of minorities.

Hence, we recommend that government of Georgia should ensure it does not fall under the influence of religious institutions, including the Georgian Orthodox Church, while drafting and implementing policies aimed at the protection of the rights of minorities. In particular, it must be ensured that the anti-discrimination bill is an efficient tool for the protection of minority rights and ensures sufficient and effective protection of minority rights through effective enforcement mechanisms.  

Education has been shown to be the most important socio-demographic factor which inculcates against homophobic attitudes among Tbilisi adults, and this finding is not specific to Georgia. Education is universally associated with the acceptance of liberal values, and the more educated an individual, the higher is the probability that they will be more tolerant, even in cases when liberal values are not specifically promoted in the process of formal education. Hence, it is hard to overestimate the importance of education in addressing the issue of homophobia and intolerance more generally.

A course on civic education was introduced in Georgian secondary schools in 2006 for high school pupils, covering issues such as basic human rights, gender equality, structure of government, international legal documents, and elections among other topics. Although this course has not proven to be highly effective yet  , it has the potential to become an important tool in promoting liberal values and understanding the importance of accepting diversity in society.

We recommend that the Ministry of Education and Science of Georgia:
  • Strengthens   the existing course on civic education and introduces the subject in primary schools with younger pupils as well, rather than in high school only;
  • Implements a comprehensive training program for teachers of civic education on issues such as equality, tolerance, and human rights.
These recommendations can and should be implemented at the national level. In doing so, they will have a positive effect not only in Tbilisi, but throughout the country.

Thursday, November 20, 2014

Exploring Homophobia in Georgia: Part 4

This is the fourth blog post in a series analyzing homophobia in the capital of Georgia and is focused on the influence of education and liberal values on homophobic attitudes among Tbilisi residents. Previous blog posts in this series can be found here: Part 1, Part 2, Part 3.

Adamczyk and Pitt (2009) found that attitudes toward homosexuals have become more tolerant in cultures that have successfully gone through the processes of modernization and industrialization and shifted their values from survival to self-expression. Although we cannot test this exact finding in the Georgian context, our findings are similar as they show that among Tbilisi adults, homophobic attitudes are negatively correlated with high levels of education and liberal values.

As mentioned in previous posts, homophobic attitudes were measured by the question: “Whom would you not wish to be your neighbor most?” which was recoded as a dummy variable with the categories “homosexuals” and “others”.

Respondents’ levels of education have been grouped into one of three categories: secondary or lower education, secondary technical education, and higher education. A liberal values score for each respondent was calculated based on the answers to the following six questions:

1) “How acceptable is it for you if a man has long hair?”
2) “How acceptable is it for you if a man wears earring(s)?”
3) “How acceptable is it for you if a woman has eyebrow piercing(s)?”
4) “How acceptable is it for you if a woman drinks strong alcohol?”
5) “How acceptable is it for you if a woman has premarital sex?”
6) “How acceptable is it for you if a man has premarital sex?”

The original coding for each question was: 0 = Never, 1 = Sometimes, 2 = Always. Factor analysis was performed (number of items: 6; Cronbach’s Alpha = .80), eventually resulting in a “liberalism scale” measuring respondents’ level of tolerance. An independent sample t-test showed that, unsurprisingly, the higher the level of education, the lower was the reported level of negative attitudes towards homosexuals (t (526) = 2.19, p =. 03). Also, as expected, people with non-homophobic attitudes scored higher on the liberalism scale (M= 0.14, SD = 1.09) than those with homophobic attitudes (M = -0.29, SD = 0.72, t (526) = 5.09, p =.001).

Similarly, Kendall’s rank correlation analysis showed that the higher the level of education, the less homophobic people are ( (Kendall’s τ (526) = - .10, p = .02). Liberal attitudes were negatively associated with homophobia (Kendall’s τ (214) =  - .19, p = .01), indicating that tolerance and acceptance of differences can prevent homophobic attitudes.

Finally, the Wald criteria in logistic regression confirmed that low education and lack of liberal values were significant predictors of homophobic attitudes among Tbilisi adults.
Binary logistic estimates for homophobia (N = 526)
The eB value in Model 1 indicates that when level of education increases by one unit, the odds ratio is 0.78 times smaller, and therefore, a person has 0.78 times less chance to be homophobic. In terms of predictive equation, this means that if someone has secondary education, his or her chance of being homophobic is 37%, while for someone with technical education the respective chance decreases to 32%, and for someone with higher education the chance is 27%. Similarly, each additional point on the liberal attitudes scale decreases the risk of homophobia by 0.61 (Model 2).

Even though the data confirms that a low level of education is a significant predictor of homophobic attitudes of the population of Tbilisi, its predictive role disappears when liberal values are brought into the model. This means that, in Tbilisi, people with higher levels of education are less homophobic, but people who share liberal values (acquired through formal education or other sources) are even less likely to have homophobic attitudes.

Generally, education is considered an important tool for combating homophobia. Educated people are often believed to be exposed to liberal values to a greater extent, compared with non-educated individuals. However, formal education in Georgia does not necessarily contribute to internalization of liberal values. A recent study on intercultural education in the primary grades of Georgian schools showed that 47% of interviewed teachers who teach at the primary level in Georgian public schools think that having a non-traditional sexual orientation should be punishable by law.

Further analysis of the May 17 survey data – moderation using bootstrap – showed that people who share liberal values and personally know homosexuals are less homophobic than those who share liberal values but do not know homosexuals personally. In contrast, people who score low on the liberal attitudes scale and personally know homosexuals are even more likely to be homophobic than those who do not share liberal values and do not know homosexuals personally.

To summarize, one of the most salient predictors of homophobic attitudes in Tbilisi is level of education, even provided that, as other studies suggest, tolerance is not specifically promoted in the system of formal education. The predictive role of education, however, disappears when liberal values are added to the statistical model. As moderation analysis shows, the relationship between liberal values and homophobic attitudes is further enhanced by respondents’ personal contact with homosexuals.

These results indicate that fostering liberal attitudes through formal and non-formal education, the media as well as other channels will be a good strategy to address the problem of homophobia in Tbilisi. Concrete policy recommendations will be presented in the final blog of this series.

Monday, November 17, 2014

Exploring Homophobia in Georgia: Part 3

This is the third blog post in a series where we analyze homophobia in Tbilisi and is focused on potential relationships between religiosity and homophobia. The previous blog posts in this series can be found here: Part 1, Part 2.

In a number of studies, religiosity has been linked to lower levels of support for human rights for homosexuals (Johnson, Brems, & Alford-Keating, 1997; Adamczyk, A., & Pitt, C., 2009; Merino, S. M., 2013). This literature, on the one hand, and the clergy’s active participation in the May 17 events in Tbilisi in 2013 on the other hand, led us to the question - are religiosity and homophobia related to each other, and if they are, what is the strength of the relationship?

In the CRRC-Georgia survey on the events of May 17, 2013, religiosity was measured with one variable - frequency of attendance at religious services (question “Not to speak about special occasions, such as weddings or funerals, how often do you attend religious services?”). It was expected that those who do so regularly and, hence, have more exposure to religious sermons, would be more homophobic than those who attend religious activities less often. The findings, however, do not prove this hypothesis. As the chart below shows, over half of Tbilisi residents rarely or never attend religious services.
Homophobia was measured by a dummy variable generated based on the question, “[Whom] would you not wish to [be] your neighbor most?” with the categories 0 = others, 1 = homosexuals. Neither independent t-test (t (n=526) =.669, p = 504), nor correlation (Kendall’s τ (214) = -.09) showed any evidence that frequency of attendance of religious services was statistically related to homophobic attitudes.
This finding may come as a surprise for many readers, and it should certainly be interpreted taking into consideration the nature of religiosity in Georgia. According to the CRRC 2013 Caucasus Barometer survey, the overwhelming majority of  Georgians consider themselves to belong to the Georgian Orthodox Church (10% of the population reports being Muslim). Trust in the religious institutions people belong to, and the reported importance of religion in their daily lives are high: 72% of the population reports fully trusting these institutions, and 93% think that religion is either “very important” or “rather important” in their daily lives. At the same time and in contrast to these reported attitudes, actual religious practices such as service attendance, fasting and prayer are rather low throughout Georgia. In light of this, the lack of a statistical relationship between religious service attendance and homophobia is less surprising than at first glance.
Finally, if we assume that attending religious services leads people to a better understanding and internalization of religious principles, this finding becomes even less surprising. Since there is much more in the Bible about love and tolerance than there is about hatred and judging others, those who attend religious services may have internalized these messages.
The mismatch between high trust towards the church and the reported importance of religion, on the one hand, and a lack of actual involvement in religious practices, on the other hand, highlights the multidimensional nature of religiosity in Georgia. In the May 17 survey, CRRC-Georgia asked respondents about only one dimension of religiosity – religious service attendance. This dimension may not be the most accurate measure of religiosity in Georgia (and, most probably, only one measure would not be enough to understand this phenomenon anyway). Having data on other aspects of religiosity, like participation in religious practices, the level of trust towards religious institutions or the importance of religion in one’s daily life, would allow us to conduct a more sophisticated analysis of the relationship between religiosity and homophobia and could change the picture that we have at this point. We consider this task a priority for further analysis.

The next blog post in this series will discuss the influence of education and liberal values on homophobic attitudes among Tbilisi residents.

Thursday, November 13, 2014

Exploring Homophobia in Georgia: Part 2

This is the second blog post in a series analyzing homophobia in Tbilisi. The first blog post in this series can be found here.

Who tends to be more homophobic in Tbilisi – men or women? This blog post explores differences in homophobic attitudes between males and females using data from CRRC-Georgia’s survey of Tbilisi residents on the events of May 17, 2013, and shows that men tend to be more homophobic than women. Moreover, the findings show that men are more homophobic when they believe that homosexuality is inborn, rather than acquired.

Through this series of blog posts, homophobia was measured by the question: “[Whom] would you not wish to [be] your neighbor most?” Six answer options were presented on a show card including drug addicts, black people, adherents of a different religion, people holding different political views, homosexuals, and criminals. Respondents were allowed to choose only one answer option. As the chart below shows, for the population of Tbilisi, homosexuals are as undesirable neighbors as criminals or drug addicts.
A simple cross tabulation shows that for men in Tbilisi, homosexuals are the most undesirable neighbors. Criminals are the most undesirable neighbors for 21% of men, while twice as many men (43%) find homosexuals to be the most undesirable neighbors. For women, the picture reverses – 23% of women name homosexuals as the most undesirable neighbors, while twice as many of them (43%) name criminals.
Within the framework of the Norwegian Institute of International Affairs (NUPI) project Homophobia in Georgia: Can it be Predicted? more sophisticated statistical techniques were employed to analyze the relationship between gender and homophobic attitudes, including correlation, Chi-square test, logistic regression, and moderation analysis. A new dummy variable was generated for further analysis based on the neighbor variable, with only two categories: 0 = others, 1 = homosexuals.

Chi-square test of independence confirmed that men are more likely to display homophobic attitudes than women (χ2 (1, n=526)=8,65; p=.003). Correlation analysis also indicated that homophobia is significantly associated with gender, with males showing more homophobic attitudes than females (Kendall’s τ  (526) = - .13, p = .001). Finally, as the results of logistic regression showed, gender is a significant predictor of homophobia (eB = 1.81, p = .003)  (-2 LL =629.22, Cox and Snell R square = .026 and Nagelkerke R square = .037). A predictive equation was used to determine the probability of reporting homophobic attitudes by men and women. The probability of men being homophobic is 39%, while it is 29% for women.

As moderation analysis further revealed, the relationship between gender and homophobia is moderated by respondents’ perception of the cause of homosexuality, i.e. whether they believe homosexuality is inborn or acquired. Among those who believe that homosexuality is inborn, males demonstrate much higher levels of homophobic attitudes than females (b = 1.021, 95% CI (0.475, 1.566), z= 3.666, p =. 00), while among those who believe that homosexuality is caused by environmental causes, gender is no longer significantly related to homophobia (b = -. 057,  p>0 .05).

“Inborn” vs “acquired” homosexuality moderate relationship between homophobia and gender
Why are men more homophobic than women, and why are they even more homophobic when they believe that homosexuality is inborn?

In respect to the first question, it should be noted that this finding is not Georgia-specific: worldwide, studies show that males are more likely to display homophobic attitudes than females (Baker & Fishbein, 1998; Poteat, Espelage & Koenig, 2009). Gender panic theory defines homophobia as males’ fear of and defensiveness against losing so called male privilege. This theory explains this phenomenon through men feeling insecurity in their access to masculine status. When males are not capable of feeling and presenting their masculinity in a rational way, they exhibit homophobic attitudes. According to this theory, homophobia is more prevalent in patriarchal societies with traditional gender roles. Given the prevalence of conservative traditions in Georgia, this finding does not come as a surprise.

What is surprising is that Tbilisi males tend to be more homophobic when they believe that homosexuality is inborn rather than acquired. Logically, if something is beyond a person’s control, it is illogical and counterproductive to blame the person for it. This logic, however, seems not to be working for Tbilisi males who tend to be more homophobic when they think that homosexuals have no control over their sexual orientation. Gender panic theory can, however, help us explain this finding as well: if homophobia is the fear of losing male status and privilege, this fear can be greater when the threatening subject (a homosexual and his or her sexual orientation) is perceived as innate and non-changeable. In contrast, when people believe that homosexuality is acquired, they think that homosexuals can control their sexuality. But when homosexuality is perceived as innate, homosexuals can be considered “wrong”, deeply spoiled people who cannot be “corrected” and thus, only deserve hatred (Douglas, 2002).

While gender panic theory offers a credible explanation of the findings explaining the relationship between respondents’ gender and their homophobic attitudes, we invite you to discuss other potential explanations on our Facebook page

The next blog post will discuss the relationship between homophobic attitudes and religious service attendance.