Interesting novelty, the government of Georgia is going to build unified government space in Ortachala district in Tbilisi.
Firstly, let us define what is meant by the term “government size.” This term has both a broader and narrower meaning. In the broader sense, this refers to the state and everything that comprises the state sector, be it healthcare, education, sport and so on. In the narrower sense, this refers only to state management. Correspondingly, when we speak about definition of the size of government, we also include the costs borne by the economy to manage the governing of the state. Herein, we will focus our discussion on the narrower meaning; that is, the concept of state management.
Determining the volume of expenses incurred by a state for is management is the most popular method for defining a government’s size. In 2016, the share of state management in the whole domestic product was 6.9%. When we consider a unified government space, however, other expenses are also included which are hidden from the top and in official statistics.
Douglas North, an economist and Nobel Prize laureate in economics says that role of institutions is important. He explains that we create institutions in order to regulate everyday relationships with events happening around us, make the future more predictable and “simplify life.” Therefore, the role of state institutions is to simplify the performance of state functions for an efficient realization of relationships between the state and individuals. This said, however, there is the counter argument – in Georgia and in other countries, too – that institutions make events more complex and they “complicate life.” An illustrative example can be seen in the existence of bureaucratic problems.
What expenses are incurred from state institutions?
First, there are expenses which are necessary for their existence; that is, activities of state management require a budget.
Second, there are transaction expenses which are necessary in the process of conducting and maintaining relationships with different state institutionsand making decisions. The term “transactional expense” in economics was introduced by Roland Coase and it refers to the expenses created in the process of economic exchanges. One of the most important transactional expenses within bureaucratic processes is connected to is time because time is needed for overcoming bureaucratic barriers. In business, time is an important determiner of success.
The location or the placement of a government is another important component of state management. From ancient times, kingdoms were concentrated around the palace and the throne and this facilitated the required contacts and relationships. Today, in the era of modern technologies, the world has shrunk in that less than a second is needed for making contact with anyone in any place as a result of the internet and telecommunications. In Georgia, the first attempt to concentrate the government was expressed in the amalgamation of a number of ministries and transferring the parliament from Tbilisi to Kutaisi. For various reasons, however, this was not followed by the transferring of different governmental institutions to Kutaisi with parliamentary committees, in fact, returning to Tbilisi. As result, we have government stuck between two cities today where transactional expenses are growing instead of being reduced.
What advantages can a governmental city and a business house have in Georgia?
First of all, an obvious advantage is a reduction in their current budget expenses. On the other hand, however, the construction of a governmental city needs important capital expenses. Of course, we are not speaking about the construction of a new city per se but only about the creation of a new governmental space in Tbilisi. This would need much less expenses.
Although, as we have noted, the idea for a unified government space still remains at the the level of an idea. Positive and negative issues will arise, but the only way for truly effective state management from our point of view is in government concentration and reduction of the government size.
Tsotne Zhghenti PhD Candidate at Tbilisi State University