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Business Ethics in Georgia

We cannot examine successful business without a due consideration of business ethics. None of the civilized countries of the West developed without business ethics.

We can note words of the former American President, John F. Kennedy: “ask not what your country can do for you, ask what you can do for your country”.

Business ethics stands for general moral principles and is closely connected to people’s religious, philosophic and cultural visions of as well as their national traditions and modern views. Because Georgia is quite young in terms of its experience with the principles of a market economy, business ethics, is a new challenge for us. For us, we have a non-traditional economics, because moral principles are unknown for traditional economics. The role of the state is important in order to help the development of business ethics in Georgia. Let us consider a decision made by the National Bank when it charged commercial banks with an important mission to inform customers about effective interest rates. A decision such as this is one of the important factors assisting the creation of a competitive environment and the development of business ethics.

Georgia undertook the obligation to harmonize its own legislation with European legislation when it signed the EU-Georgia Association Agreement. One of the most important packages of harmonized legislation concerns the protection of consumer rights vis-à-vis damage caused by “asymmetric information”.

In particular, Georgia must bring its legislation in compliance with the European Directive (2011/83) on Consumer Rights. The directive provides for the introduction of an obligatory norm such as the right of a consumer to refuse a contract within several days from the transferring of goods into his ownership or receiving a service (seven or 14 days). Today, 90% of companies operating in Georgia have no policy of return with a total amount of returns at only 7%. It is obvious that after this regulation is implemented, transactional expenses from the part of business subjects will increase even more and the cost of returned goods will be significantly reduced.

In the document of estimation of influence of regulation of the Great Britain on the protection of consumer rights, it is noted that business expenses are on average 50% of the cost of returned goods. In 2016, part of sales with the cost of GEL 85,770,000 were lacked as a result of a return policy and expenses connected to the termination of contracts amounted to GEL 4,268,000. For comparison, the amount of terminated contracts Germany is 1.8%. Such a low index speaks to their production of high-quality goods. Therefore, we can say that state regulation within the short term will cause important losses but it will assist simplification and increase economic activity in the long term as a result of market improvement. This will increase the trust and efficiency of the “invisible hand.”

The following is a rule in business: Systematically take care of your employees and consumers and the market will take care of you. The following violations of ethical principles are evidenced in business activity:  incorrect financial statements, avoiding paying taxes, production of low-quality, goods harmful for health, ignoring safety norms in production processes, the use of dumping, discrediting of competitors, pollution of the environment, etc. In comparison to the last years, we can say that a shadow economy no longer exists in Georgia and this indisputably points to the formation of a business culture even though many questions remain as concerns the production of good quality products.

The development of local business ethics essentially influences the attraction of foreign direct investments which are a necessary condition as for economic growth and a familiarization with foreign business ethics. It should be noted that a business’s social liability also increases during the period of economic transformation.

Social liability takes the form of sponsorship and charity, among others, on the part of business actors. There are many examples of this in Georgia although regular participation in various social programs causes raise in demand from beneficiaries. This is why the first social liability for business is to increase employment and not increase the frequency of its social projects (here, financing of force-majeure situations are not considered).

Therefore, the development of business ethics is wishful in parallel to economic growth which, of course, excludes many social expenses from the state budget.

Givi Makalatia – PhD Candidate at Tbilisi State University