Assembling International Competitiveness: The Republic of Georgia, USAID, and the Doing Business Project

abstract

Global indices of economic competitiveness, such as the World Bank’s Ease of Doing Business Index (EDBI), score and rank states according to the quality of local business regulations. Quantifying and indexing regulatory quality to a singular ranking constructs a “best practice” model that characterizes regulation in the highest-ranked states. States that outcompete others in transferring regulatory best practices from higher-ranked states are rewarded with an improved international reputation for having investor-friendly policies. By helping to attract the interest of foreign investors, the production of higher competitiveness rankings serves as an extraterritorial state strategy for gaining from globalization. This article details the reform strategy that was used to produce the (post-Soviet) Republic of Georgia’s 2006–2009 vault up the EDBI rankings. These higher rankings were the centerpiece of an investment-promotion campaign that accompanied strong inflows of foreign direct investment. Making full use of EDBI as a strategic resource for promoting increased foreign investment involved the composition of an institutional assemblage of the Georgian government, USAID, and the World Bank’s Doing Business project. Ethnographic research revealed how power geometries emerged among the assembled organizations to enable the transfer of EDBI’s best practice regulations in some areas, and to impede it in others. The case study reveals how limits to policy transfer are created by geographic context and how EDBI rankings can be exploited to obfuscate problematic business conditions that are overlooked by its measurement methodology.

Key Words:

• territorial competitiveness
• extraterritoriality
• policy transfer
• knowledge networks
• investment promotion
• assemblage theory
• frontier markets
• Republic of Georgia

Acknowledgments

This research was supported by an Advanced Research and Language Training fellowship from the American Councils for International Education (ACTR/ACCLES), and a Doctoral Fellowship for International Research from the University of Minnesota, Office of International Programs. I am grateful to the staff of the Georgia Business Climate Reform project, to the Georgia mission of USAID, and to Georgia’s State Ministry for Reform Coordination for allowing me to observe their work. Eric Sheppard, Tatiana Matejskova, Carroll Patterson, and Luke Bergmann provided helpful comments on earlier drafts of this article. Ambassador Alexander Rondeli and the Georgian Foundation for Strategic and International Studies provided indirect support by hosting me in their excellent facilities and stimulating intellectual environment. I also thank Henry Yeung and three anonymous reviewers for helping me to hone the article’s arguments and presentation. I, however, retain sole responsibility for any shortcomings that may remain.

Notes

1 Georgia’s EDBI ranking reported in the yearly editions of Doing Business increased from 100/155 in 2006 to 37/175 in 2007 to 18/178 in 2008 to 15/181 in 2009 and to 11/183 in 2010 (World Bank and IFC 2006a, 2006b, 2007, 2008, 2009). The country’s GCI ranking was 85/125 in 2006, 90/131 in 2007, 90/134 in 2008, and 90/133 in 2009 (Porter, Schwab, Lopez-Claros, and Sala-i-Martin 2006; Porter, Schwab, and Sala-i-Martin 2007; Schwab and Porter 2008; Schwab, Sala-i-Martin, and Blanke 2009).

2 Georgia’s 2007 per capita GDP was $4,405.44, measured by purchasing power parity in constant 2005 international dollars. The average figure for EDBI’s top 20 states in 2009 was $31,423.08, per the World Bank’s World Development Indicators.

3 I deleted countries that were not ranked by both indices from the data set when I calculated this correlation coefficient (N = 130). The coefficient is significant at the 0.01 level.

4 Although the nonparametric Spearman’s rank correlation coefficient is best suited for evaluating the level of correspondence between the two indices’ percentile ranks, there is also a strong linear relationship represented by the solid line in Figure 1. The dashed lines represent the 95-percent confidence intervals of the linear R² statistic of 0.657.

5 Although my arguments about Georgia’s outlier status are even more relevant to its 2010 EDBI rank of 11/183 (6th percentile) than to its 2009 rank, I analyze the 2009 rankings for consistency with the data analysis presented in the article’s later sections on how the 2009 rankings were targeted.

6 These indicators are counted by GCI as sources of competitive disadvantage that outweigh Georgia’s rank of 6/134 on GCI’s “burden of government regulation” indicator.

7 FDI dropped significantly from 2007 levels after the brief war that Georgia fought with Russia over the separatist territory of South Ossetia in August 2008, which almost coincided with the onset of the 2008 global financial crisis. The relative deficit of FDI was largely offset, however, by approximately 4.5 billion U.S. dollars of postwar international aid that was supplied to Georgia.

8 Perhaps recognizing a potential conflict of interest among writing regulations, measuring their quality, and basing claims to the project’s success on rankings ascension, Doing Business no longer lists GBCR or any other development projects funded by international donors as contributors.

9 The total Georgian tax revenue averaged only 7.6 percent of Georgia’s GDP from 1997 to 2003. This situation made the Shevardnadze regime heavily dependent on foreign aid to fund state expenditures and was considered a symptom of pervasive official corruption by the donor community (Organization for Economic Cooperation and Development 2005). By 2007, tax revenue had grown to 23 percent of the GDP.

10 The “closing a business” indicator measures whether a typical bankrupt firm’s assets do, in fact, change hands quickly, not whether the law says that they must. Georgia’s EDBI indicator of time to close a business was unchanged at 3.3 years from the 2008 to 2010 editions of Doing Business (World Bank and IFC 2007, 121; 2008, 105; 2009, 122). A cross-country comparison of auction procedures is missing from otherwise extensive background research on “closing a business” (Djankov, Hart, McLiesh, and Shleifer 2008).

11 Because other states had made larger moves up the rankings from lower starting points, Georgia won fifth place among the world’s top reformers, despite having made the most reforms of any state according to Doing Business. Ministers from the top 10 countries attended the Doing Business Reformers Club event held at the New York Stock Exchange in June 2008.

12 Thanks to Luke Bergmann for pointing out this implication and to Eric Sheppard for his input on attractors.