Tuesday, August 19, 2008

The Georgian Mess

The ongoing war in Georgia, being an ethnic conflict that, most unlike the Yugoslav wars of the 1990s--featured great-power military intervention right from the start, and as a result has attracted a very large amount of international attention from the word go. Google News Canada returns in excess of 39 thousand hits to a simple search using the keywords "Russia" and "Georgia." This latest spurt of interethnic war is only the latest in the long-standing conflicts South Caucasus region including the states of Georgia, Armenia and Azerbaijan, with the wars of Armenians versus Azerbaijani and of Georgians versus Ossetians and Abkhazians, but it's one that will be very serious for Georgia's economic future.

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The South Caucasus forms an interesting region in Europe insofar as fertility is concerned, as revealed by the Vienna Institute of Demography's European Demographic Data Sheet 2008 (sources here PDF format)which provides data on the populations of the three different South Caucasus states. Georgia stands out somewhat among its Caucasian peers. Selected information from Georgia, the other South Caucasus states and on their neighbours Turkey and Russia, is provided in the table below.

Some interesting trends appear--Azerbaijanis seem to behave rather like their Turkish counterparts--but one that does stand out is the extent to which Georgians have advanced beyond their South Caucasus peers further down the stages of the demographic transition. This isn't new: Georgia was to be found advancing ahead of Armenia and Azerbaijan and joining the Slavic republics of the Soviet Union in the movement towards post-transitional fertility patterns and low fertility at least as early as the 1950s--one source suggests that as of 1950, Georgia's TFR was around 3, while Armenia's was close to ~4.5, and Azerbaijan's ~5.5.

The aging of populations is a natural phenomenon around the world, and even in the most fortunate polities the management of this aging consumes quite a few resources. Georgia is not one of those fortunate polities, as the World Bank points out in its 2007 survey of gross national income per capita (PDF format). Edward's writings back in 2006 on Serbia's serious demographic issues and their likely impact on Serbia's economy were quite accurate, but Serbia is starting from a much higher point than Georgia.

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Economic gaps with Russia existed before. As noted here, Georgia fell, along with Moldavia and Armenia, into a group of lower-middle income republics, well ahead of southern Central Asia but well behind Russia and the Baltic States. After the Soviet collapse, suffering internal disintegration and the shock of isolation from the wider Soviet economic space that Georgia was affiliated with, Georgia suffered a steep collapse. Timothy Heleniak observed that in the conflict-ridden post-independence South Caucasus, first Russians, almost half of the South Caucasus' population, left, followed by large chunks of the general population. With growing--and stable--21st century economic gaps like the ones shown above, it's no wonder that this mass labour migration has occurred. Fiona Hill described the current state of affairs in a recent lecture, "Eurasia on the Move: The Regional Implications of Mass Labor Migration from Central Asia to Russia".

According to Hill, Russia has experienced positive net migration since 1991, with the majority of immigrants arriving from other Soviet successor states. Ethnic Russians migrating to their titular homeland from other Soviet republics comprised nearly 60 percent of total immigration to Russia between 1989 and 2002. However, Hill noted that these numbers reflect only legal migration. She argued that significant numbers of non-Russian labor migrants have come to Russia from the Caucasus and Central Asia, often illegally. As many as 2 million Azerbaijanis, 1 million Armenians, 650,000 Tajiks, 500,000 Georgians and Kyrgyz, and 100,000 Uzbeks may be working in the Russian Federation.

High levels of immigration have affected Russia in a number of ways--many of which, Hill argued, have been very beneficial to the country. She noted that the Russian economy has more than doubled since 1999 and that domestic demand has increased significantly. Immigrant entrepreneurs provide Russian consumers with cheap goods (primarily from Asia and the Middle East), which is particularly important in Siberia and the Far East, where transportation costs make goods from European Russia prohibitively expensive. In addition, "cheap labor is filling a void inside Russia itself--the whole of the lower-paying sectors in the Russian economy are increasingly being filled by migrants from elsewhere in the CIS," she said.

Immigration has also helped to ameliorate the consequences of Russia’s demographic decline, Hill argued. Russia could face serious labor shortages in all fields due to out-migration of skilled workers, high death rates among working age people, low birth rates, and a high percentage of the population above retirement age. However, according to Hill, immigrants have compensated for three-fourths of Russia’s natural population decrease between 1992 and 2003. The majority of immigrants are of working age, and although many are employed in low-skill sectors of the economy, migrants from the CIS also include a large number of university graduates.

Hill contended that labor migration to Russia has also had a stabilizing effect in the Eurasian region as a whole: "Russia’s biggest contribution to the security of this very vulnerable region over the past decade has not been through its military presence--or security pacts, but has been specifically through absorbing the surplus labor from the Caucasus and Central Asian states, providing markets for their goods, and transferring funds in the form of remittances." Russia’s labor market has provided an outlet for hundreds of thousands of people who would be unemployed in Central Asia and the Caucasus, and remittances from migrants working in Russia have become a major component of the economies of many former Soviet states--as much as 25 percent of GDP in Georgia and 18 percent in Tajikistan.

As essential as these labour diasporas might be for the migrant-sending nations, not only are their affairs complicated by the hostility of some Russians towards Caucasians of all ethnicities and Muslims (including Russian citizens) and by the formulation of immigration policies that make life relatively difficult for these diasporas. Osmanova, Vartanian and Bulghadarian wrote in their 2007 IWPR article "Caucasian Migrants’ Struggle in Russia", Armenians and Azerbaijanis found it easy enough to evade Russian restrictions on the employment of foreigners in marketplaces. Georgians found it much more difficult, thanks to very bad Russian-Georgian relations.

Pro-government parliamentarian Giga Bokeria has said that neither the government nor parliament in Georgia will take any steps to ease the problems of Georgians wishing to work in Russia.

According to the World Bank, remittances from Russia constitute five per cent of Georgia’s GDP. The real figures are certainly higher as much of the money is sent in roundabout fashion.

There are an estimated one million Georgians living in Russia. In addition, around 90,000 Georgians go to Russia each year for seasonal work. Typically, these workers come from the provinces of Georgia, have no higher education and are aged between 25 and 35.

They are the ones worst affected by the transport blockade on Georgia imposed by Russia last autumn.

In May, Federal Migration Service deputy head Vyacheslav Postavnin, appeared to utter a veiled threat towards Georgia, saying, "When it comes to attracting labour migrants it is always better to give the priority to those countries with which Russia has good relations, including trading and economic relations, where there is a positive attitude."

Further complicating things for the Georgians working in Russia is the possibility that Georgia's large diaspora is not only politically active but possibly also aligned against Saakashvili: Might the President have been trying to weaken pro-Russian factions by weakening their economic base? God only knows.

What is certain is that, as Mzia Shelia noted in her 2006 "Population Aging in Georgia Under conditions of Economic Crisis" (PDF format), a Georgia facing a rapidly aging and shrinking population is going to face challenges of an almost existential nature.

It is significant that demographic burden didn’t increase in the noted period; presumably it was caused by reduction of average life expectance. In the same period aging process developed more profoundly in rural areas than in urban ones. All the regions of the country have aged considerably. At the present time in Georgia not a single region or ethnic group is demographically young. Age structures were deformed most of all among Russians, Ukrainians, Ossetians and Greeks. The level of longevity has declined too with which Georgia had always been a distinguished country.

Due to the economic and political crisis in the 1990s, Georgia retreated from the evolutionary way of its demographic development and at present starkly different model of demographic aging has been formed. Under weak economic conditions all social, economic, psychological and moral problems associated with population aging were brought out much severely. For example, in parallel with the growth of pension expenses incurred by high level of aging, retirement-age increase becomes more and more actual issue. It should be noted that in Georgia where according to the official statistics the unemployment level is 15.1 percent, retirement age increase cannot give the same results as it can give in developed countries. In our opinion and as it attested by studies, the rise of retirement age for the country which is under conditions of economic crisis will lead to the further increase of unemployment, acceleration of emigration processes, "brain drain" and decline in the country’s intellectual potential in the long run. It will intensify social tension even further; intergenerational relations will become acute. All the above will deepen economic crisis.

There's no easy way for Georgia to catch up economically. Gylfason and Hochreiter this month have attributed Georgia's wealth gap relative to Estonia to underinvestment in the economy generally and in education, a lack of technological sophistication, and isolation (Turkey can't play the same role for Georgia that Finland played for Estonia, and Russia most certainly won't). The thing is, Estonia of all of the countries of post-Communist Europe is going to come the closest to replacement-level fertility at the end of the day because it really is a post-Communist Nordic country in quite a few dimensions including the demographic, but Georgia's more likely to fit into the typical Mediterranean (and Black Sea?) framework of sustained below-replacement fertility. Without immigration, it's bound to suffer rapid aging. Add in emigration--if not to Russia then to Turkey, another neighbouring regional superpower with a large and dynamic economy and historical connections to the country--and Georgia's rapid marginalization is secured.

If this fate can be avoided at all, Georgia needs good leaders. It doesn't have them now: Misha Glenny was right to write recently in The New Statesmen that Georgia's triggering the recent war was "a disastrous political miscalculation, even in an era that is increasingly defined by spectacularly poor judgement." The author of a 2002 report from the office of the Public Defender of Georgia looks to have been right to argue that the Georgian state's manifold failures are responsible for the exit of many thousands of people from the Georgian nation-state. The damages of this war have imposed huge costs on the country. If Georgia can only continue to offer its young people poverty and war, why should they stay?