The Country That Has it All

Posting under the header: ‘More Signs That We Are In the Twentieth Century After All’ my young Argentinian co-blogger notes crypically “I don’t know what a XIXth (or XXth) century englishman would say, if we told him that English unions would one day protest against losing skilled jobs to India”……… adding…………”and, in the heels of our previous post about Sekhar Kapur interview, today the blogsphere is buzzing with news of the P2P network Kazaa’s agreement to distribute (in a pay-per-view fashion) the indian film Supari. If this works out economically, the sidelining of traditional distribution channels might very well enhance the global reach of Bollywood productions, specially among the growing Asian diaspora in the developed world. We are truly living in interesting times”. (BTW: I owe the post on Kapur to Marcelo: completely. If it wasn’t for Argentina, what would I know about India!).

In the comments I respond “Absolutely, there is another big push going on, Google’s innovative share offer is another example, maybe blog portals will be another. Something is really happening out there”. So it’s wakey wakey time. For the first time since the mid-ninetees the thing is really humming. First-movers, creative destruction, defining moments: get tighly back in your seats. Hold on for the bumpy ride.

And meantime, exceptionally, and on a boring grey Saturday morning: news from the country that has it all: problems, problems, problems.

The arrival of winter in this troubled land of medieval forts and Soviet-era apartment buildings invariably means one thing: another energy crisis. And so late last year the desperate government turned to U.S. officials for help.

With U.S. funds, a consulting firm was hired to take over the country’s electrical distribution system outside Tbilisi, the capital, but it did not take long for the American consultants to discover why Georgia is a nation that does not work. The power company the firm inherited in May was a tangle of creaky equipment, unpaid debt and widespread corruption. Only 10 percent of customers paid their bills.

The consultants decided to play tough. Delinquent customers would have their power turned off until they began paying. The Georgians’ response proved equally tough. In one region, the governor and his guards stormed a substation and flipped the power back on. A mayor in another area did the same, whipping out a gun and shooting a transmission insulator to prove he meant business. Subcontractors have been kidnapped by their own employees, and the consultants even had to break up a knife fight in the energy minister’s office.

The U.S. firm’s tribulations mirror a broader social breakdown in this country of 5 million. A dozen years after independence, the former Soviet republic in the Caucasus Mountains has become the archetype of a failed state, overwhelmed by poverty, stagnation, graft and separatist divisions.

“It’s just a big dysfunctional web,” said Dean White, a senior partner at PA Consulting Group, the U.S. firm struggling to fix the electrical system.

Years of frustration boiled over in parliamentary elections this month as nearly 80 percent of voters cast ballots for parties other than the bloc led by President Eduard Shevardnadze. And that was only the official tally. The vote was marred by massive fraud, according to U.S. and European observers, and thousands of protesters certain that the government stole what votes it did get have been in the streets of the capital for nearly two weeks demanding Shevardnadze’s resignation.

In the latest escalation, as many as 20,000 protesters marched to Shevardnadze’s headquarters at the State Chancellery on Friday and formed a human chain around the building.

The election may also have signaled a turning point in U.S. relations with Georgia. For the last decade, Washington has given Tbilisi special treatment out of gratitude to Shevardnadze for his role in ending the Cold War when he was Soviet foreign minister.

Successive U.S. administrations have funneled more than $1 billion to Georgia, one of the highest per capita rates in the world. The CIA trained Shevardnadze’s personal guards. President Bush dispatched Green Berets to train Georgians to deal with terrorists camped out in the lush but lawless Pankisi Gorge. “We used to be the darlings of Washington,” recalled Tedo Japaridze, the Georgian national security adviser, who has six aides whose salaries are paid by the U.S. State Department.

But now there are increasing signs that the long-indulgent United States has decided to stop cutting Shevardnadze so much slack.

In the run-up to the election, Bush publicly encouraged Shevardnadze to hold an honest vote and chose the most influential envoy he could find to deliver the message, former secretary of state James A. Baker III, Shevardnadze’s longtime friend from the final days of the Soviet Union. Baker came in July and pressured the Georgians into adopting a new election code.

To impress upon Shevardnadze the importance of the situation, more American luminaries followed, including Sen. John McCain (R-Ariz.), John M. Shalikashvili, a former chairman of the Joint Chiefs of Staff, and Strobe Talbott, a former deputy secretary of state.

In a last-minute intervention, Bush sent Shevardnadze a letter two days before the Nov. 2 vote imploring him “to conduct this upcoming election in a free, fair, peaceful, and transparent manner” and avoid “violence and intimidation as a political tool.”

The apparently rigged election left U.S. officials steaming. In an interview, U.S. Ambassador Richard M. Miles called the election “a mess” and “marred by massive irregularities and voter fraud.” More broadly, he said: “We’re disappointed at the slow pace of reform in Georgia. There are seemingly enormous difficulties in tackling very basic problems with corruption in this society. We would like to see stronger leadership and faster, more measurable progress.”

AES Corp., an Arlington-based firm that owned Tbilisi’s electric utility, pulled out of Georgia in July in frustration and sold its assets to Russia’s electric monopoly. Two months later, a U.S. aid official declared that, when it came to reform in the 27 former Soviet-bloc countries, “Georgia’s progress has slipped near the bottom.”

Even before the election, U.S. officials made their displeasure plain this fall by canceling a $14 million aid project to rehabilitate a hydroelectric plant and scaling back a program to help the Finance Ministry. They have threatened more aid reductions in February unless Georgia demonstrates progress according to certain benchmarks of reform.

“I think their patience is finished,” said Alexander Rondeli, president of the Georgian Foundation for Strategic and International Studies.

Talbott said in an interview that the time had come for Washington to apply a tough-love policy to the Georgians. “If they can’t get the problem of corruption, and essentially corrupt politics, under control, then there’s not much hope for Georgia,” he said by telephone from New York. “Shevardnadze has this huge international prestige that he could have used . . . and all the preliminary evidence is that he decided not to do that.”

Japaridze, a former ambassador to Washington, said he sees the shift in the e-mails from the White House that he finds each morning when he arrives at the office. He added that Shevardnadze grasps the situation.

“He knows and understands better than anyone that Washington has a short memory,” Japaridze said in the State Chancellery building, over the shouts of protesters outside. “Yes, he helped bring down the Berlin Wall, and there will be nice words. But politics is about other issues.” Japaridze acknowledged that the election was deeply flawed and added, “We need to do our best to clean up this damage.”

Georgia was supposed to be a model of reform under Shevardnadze, but in recent years has seen mostly misery. Major industries have been taken over by powerful oligarchs, including some close to Shevardnadze. Georgians must pay bribes to get driver’s licenses, passports or university admission, to start a business and to avoid paying taxes or electric bills.

“There’s no segment in Georgian society without corruption,” said Ketevan Rostiashvili, director of the Georgian office of American University’s Transnational Crime & Corruption Center.

Pensioners receive $7 a month, and even that is often months late. Police officers are so poorly paid that protesters have been slipping them food across the barriers each night. Electricity has become such a precious commodity that the elevators in some tall buildings here will not work unless people feed coin boxes installed in them.

The shadow economy represents at least 60 percent of Georgia’s total. And even under the most optimistic growth scenario, according to Roman Tsiridze, an economist, it would take Georgia 12 years to catch up to where Bosnia is today.

One reason for that can be found at the Tbilisi factory run by David Bidzinashvili.

In the communist era, the sprawling factory compound employed 5,000 people and supplied shoes for sale throughout the Soviet bloc. Today, most of the buildings are used for storage and only the part bought by Bidzinashvili for $130,000 in 1990 is still operating, making uniforms for oil companies.

During his busiest season, he employs 380 people.

“We can’t compete with small illegal factories that don’t pay taxes,” said Bidzinashvili. “There are a lot of them, and they can produce as much as we do and they can sell cheaper.”

What’s more, Georgia is still in pieces. The territories of Abkhazia and South Ossetia remain under the control of pro-Russian separatists.

The Pankisi Gorge was until last year the refuge of Chechen guerrillas and Arab terrorists. The autonomous region of Adzharia has its own military and does not defer to Shevardnadze, who is trying to make a deal with its leader to forge a parliamentary coalition.

The ripple effects of those divisions are visible in the heart of Tbilisi. Overlooking Republic Square, just behind a statue of Georgia’s 12th-century hero, King David the Builder, sits the run-down Iveria Hotel, its once proud sign rusted, its cold lobby dilapidated, its balconies covered by cheap plywood or blue plastic sheeting to create more rooms.

About 3,500 refugees from Abkhazia have been camped out at the Iveria for more than a decade waiting for a chance to go home. “We’ve heard promises for 10 years, but nothing has ever been done,” said Lamara Availiani, 69, who lives on the fourth floor in a small room with a cross and an icon on the wall. “We have no hope left.”

4 thoughts on “The Country That Has it All

  1. Bollywood and Hong Kong as the new stardards in cinema? That would represent a revolution. If P2P distribution required noting more expensive than a VCR – say some kind souped up Tivo box – certainly it would make distribution in the developing world a lot easier.

    As for Georgia, I am constantly dazzled by how back in 1991 every republic of the old Soviet Union except the Baltic states voted to preserve the Union, and the place still fell apart. How they have gone in 12 years from being willing to stick to Moscow to a near insane level of local nationalism is something I think I’ll never understand.

  2. “certainly it would make distribution in the developing world a lot easier.”

    Nice idea Scott. The central point seems to be that some current aspects of globalisation are certainly proving to be very dynamic (especially the culturally related ones), and at the same time disruptive of the established global order of things. We are going to see more and more ‘leapfrogging’: a concept which even 5 years ago seemed impossible to imagine.

    On the ‘defining momement apocalyptics’ of the post: it does occur to me that what perhaps is going to define the latest wave of innovation is not so much the ‘death of distance’ as the ‘dissapearance of space’ as a central coordinate.

    If we go back to outfits like Salon: what crippled them was the cost structure of having full-time journalists and a large physical office. Yahoo – which survived – still inherited this liability. My feeling is that what we will see this time round will be defined by the absence of this ‘bricks and mortar’ millstone.

  3. I posted the Georgia part since I have an interest in this deriving from the fact that my son did three weeks fieldwork there back in May. The point is we have a globalisation process with both positive and negative feedback components. I post an extract from what my son sent me at the time: maybe this will help find pointers to some of the ‘negative’ ones.

    “The flight was to Yerevan in Armenia, and was full of young men, most of whom were flying on to Tashkent. They all had a kind of ‘eastern’ look about them, apart from the fact they were messing around with loads of brand new camcorders and other gadgets. There seemed to have been a shit load of shopping going on in Harrods by these guys and they were all determined to bring it on as hand luggage, much to the stewardesses consternation. Ha ha.

    Anyway, we arrived in Armenia a few hours later (about 00.00 local time). We’d befriended an old american guy working over there (on some agriculture project… and yes pig farming was a big part of the equation) on the plane, and after messing around with some very bureaucratic (but good looking) officials in the airport and sorting out visas we eventually set foot on foreign soil. The army dudes in the airport were NOT to be messed with. This American was meeting some interpreters so they helped us with sorting out taxis for our 6hr trip by car to Tiblisi… which was damn lucky really. Anyway, $100 between 5 of us wasn’t a bad price, considerring that there was always the possibility of a bit of bullet dodging somewhere along the way. The night journey began.

    Armenia is amazing. Its high and very cold at night. The towns we saw at dawn were the most macarbe place you will ever go. Truly strange. We found ourselves driving through these incredibly steep craggy gorges and eventually comng across factory towns like no other i have ever seen. The side of the mountains steeped in the greenest grass i have ever seen, but then there would be these ginormous factories, with smokestacks pouring forth and rivers of what looked like the most rancid and caustic effluent imaginable. Terrifying. Factories lying like rotting grey skeletons in the middle of stunning backdrops.The roads were shit but our driver (Tico) was pleasant enough. Happy for the cash.

    We arrived in Tiblisi monday morning. Slept all afternoon after arriving at our pad and then met a rather interesting chap called UKA. He’s a manager at the local health clinic. about 25 yrs old. Georgia is notably better off than Armenia. You can see it as soon as you cross the border… almost immediately. Before i go on let me say two things.I have never seen so much alcohol drunk in all my life. All these people are alcoholics. Secondly, I have been eating the BEST food of my LIFE for the past two weeks.UKA took us out by way of introduction on mon night. He was what they call the tamada (basically the drinking boss for the night) and he made us drink the most incredible amount of booze. That night, i was interviewed by georgian television (and on tv the next day), offered a couple of whores by Uka (its only polite), drove around in numerous ladas, met a lot of good looking women and a lot more whih i won’t go into.

    Tuesday…. well a bad day for the brain. We met more contacts and settled in. The health system is in a state and basically there is a huge informal economy in health over here. Things work better than you would imagine but obviously the main issue is financing. They still use much of the same organisational structure that was established in the soviet period, and it seems to me that they recognise how valuable aspects of it were. However they are in the process of reforming a large part of primary vare which i will tell you more about in another email. We have met some very interesting people.

    The next few days were spent interviewing people and gathering data, workjing on the toolkit and implementing it. They have loads too many doctors over here (it is very popular) and so they have a pretty inefficient health system. They spend only around 1.5% of gdp on health care as well. The weekend was great. Fri… more drinking and eating, some dancing, we met guys with guns and gangsters, raced around the pothole infested roads of Tiblisi in souped up ladas and bmw’s played footy, met ex-secret service, engaged in some more street racing, went out to the countryside and saw some old churches from the 6th century, sang with the georgian equivalent of andrew llyod weber, were offered more hookers. ALL georgians are alcoholics.I shall leave it there and be in touch again soon… there is a lot more to tell, especially about the health system. (the computer place is now shutting. I It was an hours walk to this place and its getting late).”

  4. ‘leapfrogging”, “dissapearance of space as a central coordinate”: Edward, this is enthusiasm, not analysis.
    1) Disappearance of space as a central coordinate? This one utterly escapes me. You can explore “meatspace” using nothing more than your five senses. The micro-, nano- and picospaces that we are moving into, however, require ever-increasing amounts of equipment and investment – not to forget the educational and economic institutions that facilitate such innovation. We are developing increasingly sophisticated methods of navigation in space and employ coordinate systems that are several degrees of magnitude more precise than they used to be. We are on the verge of being permanently trackable in space due to the GPS-enabled devices we are going to carry around, etc.
    2) You seem to think that “leapfrogging” is a clear-cut, obvious concept – like I think that “world GDP” (which you consider to be meaningless) is a plain and very-easy-to-grasp idea. Please explain: two frogs leaping ahead of each other endlessly – how does one of them ever gain a lasting advantage? (Oh, and “leapfrogging” is, of course, a spatial concept…) During the dotcom boom, everybody was convinced that the only place where you could do web design was on a surfboard in Southern California. I notice that Germany is currently becoming a hotbed of Internet development. Yet Californians didn?t have the benefit of GSM, and Germany is way, way behind Mongolia in terms of deployment of fiber-optic. Technically speaking, the place to do web development would be with a 3G-phone and a wearable PC somewhere on horseback in Mongolia. It should certainly be more inspiring than the office walls I am just now looking at (Maybe someday I am going to try it…)
    3) “absence of this ‘bricks and mortar’ millstone”: I think you are going to be right about this one: electronic commuting might finally take off – after decades of rosy predictions -, but the likely consequences would be a slump in the market for office space and a continuation of the downturn in the automobile industry (Germans are now replacing their car every eight instead of every six years, and that wouldn?t change if cars were going to be used less frequently.) In short: if you are indeed proven correct here – I can easily imagine that you might be -, then the context would be one of increasing un-, under-, temporary and part-time employment and wage stagnation or reduction.

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