Democracy Lab

Georgia's Surprising New Normal

For the first time in recent memory, Georgia's presidential race isn't about the big names.

On October 27, Georgians will go to the polls to choose their country's next president. And, by all accounts, they will do exactly that. Unlike last year's parliamentary elections, the 2013 presidential elections lack intrigue, lack scandal, lack magnetic, newsworthy personalities -- and that's exactly what makes them so interesting. Last year's elections marked the first time that Georgia saw a peaceful, constitutional transfer of power in its modern history. Now, Georgia's presidential elections will mark the country's next major step towards political maturity and democratic consolidation: rational, undramatic predictability.

While most are dwelling over the widely discussed narrative of Georgia's bitter political feuding, the real significance of the elections is not even the outcome of the race. This year, there is a universal expectation that the election will be conducted freely and fairly, and will offer voters realistic options -- which seemed a lot to ask even a year ago. Barring a shocking political upset, a victory by either of the top two candidates should preserve Georgia's political continuity. Though we're in the early days yet, what makes this election so exciting is the prospect that democratic practices are finally beginning to take root. Considering the flawed elections in neighboring Armenia earlier this year, or more recently in Azerbaijan -- and not to mention Russia's time-honored proclivity for autocratic rule -- this is no small feat.

Since gaining independence, Georgian politics have been all about the big personalities of its political titans, rather than their differing policy platforms. Georgia's ultra-nationalist president, Zviad Gamsakhurdia, led the country into civil war. He was then replaced by former Soviet foreign minister Eduard Shevardnadze, who managed to cobble together the rudiments of a state with a combination of foreign aid, graft, and a bit of duct tape. Then Shevardnadze was toppled by his old allies -- including Mikheil Saakashvili, his former justice minister -- in the Rose Revolution. Saakashvili and his United National Movement's (UNM) tenure  saw the development of a modern state, although not a particularly democratic one. It took yet another big personality, billionaire Bidzina Ivanishvili and his Georgian Dream (GD) coalition, to unseat him. Yet by early 2014, Georgia is likely to have a technocratic president, prime minister, and a vibrant, competitive parliament. Not too long ago, this kind of scenario would have been virtually unthinkable.

Candidates do still matter, of course -- just not quite in the way they used to. The slate of major presidential candidates underscores the relative openness of the race. True, most analysts expect the win to go to the ruling GD coalition's candidate, former university rector turned education minister Giorgi Margvelashvili. Yet the second- and third-place candidates -- the opposition UNM candidate Davit Bakradze and onetime parliamentary speaker Nino "Nine lives" Burjanadze -- seem to have overcome the odds to give Margvelashvili some competition.

What's more, the candidates seem to have been successful because of their rational, policy-driven approach to the election, not in spite of it. With little popular name recognition nor an independent party apparatus behind him, Margvelashvili was chosen at least partially because he does not fit into the classic Georgian political archetype of a dominating personality. Likewise, Bakradze, for his part, has a reputation for moderation and collegiality. Even Burjanadze, who comes from an old Soviet nomenklatura family, is the exception that proves the new rule. Unlike Margvelashvili and Bakradze, she represents the old guard of patroni politics where the client-patron exchange far outweighs actual policy positions. Yet in this election, she has positioned herself as a candidate for anti-UNM voters rebelling against the GD's "soft touch": "allowing" ex-Interior Minister Bacho Akhalaia to be acquitted on some charges, punishing violence against minorities, and pursuing a pro-West foreign policy. Interestingly, Burjanadze has been able to win the little support she has not because she may be an able source for patronage, but because she represents a wholly distinctive political platform.

On top of this, whoever wins will inherit a vastly reduced presidency compared to the powers currently wielded by President Saakashvili, who is barred from running again by term limits. Constitutional changes made well ahead of last year's parliamentary elections will shift significant powers to the prime minister's office after the next presidential inauguration, a move widely interpreted as a convenient egress for Saakashvili to slide into the newly empowered premiership. However, fate did not cooperate with Saakashvili's plans. In the October 2012 parliamentary election, Ivanishvili's GD coalition was able to win premiership in a convincing and unexpected victory. Gone were the days of Saakashvili and his tight circle of allies dictating grandiose projects, policies, and economic winners on a whim.

As for Ivanishvili, he has announced -- in keeping with a longstanding pledge -- his intention to resign before the new year. The most popular man in Georgian politics, Ivanishvili has said that his only reason for entering politics in the first place was to spearhead course corrections. According to Ivanishvili, his stepping down is also an opportunity to help rid the country of its largely personality-driven politics. While GD's pick for Ivanishvili's successor is still unknown (though the prime minister says he already has someone in mind), the next prime minister is likely going to be someone in the same mold as presidential candidate Margvelashvili: accomplished and respected, but not a major force of personality.

Not only have the deck chairs been thrown overboard, but Georgia also appears to be making genuine progress towards democratic development and the rule of law. Contrary to some expressions of unease, most observers tend to agree that Georgia is moving in the right direction. A widely-anticipated report from the European Union's special representative to Georgia, Thomas Hammarberg, gave strong marks to the GD government's reforms, particularly in developing an independent judiciary and tackling elite corruption.

Still, much work remains. Georgia's institutional checks and balances need to be strengthened, major decentralization reforms are long overdue, Georgia's 300,000 or so internally displaced persons remain largely in limbo, and broad-based economic development remains very much a work in progress. Meanwhile, skeptics note that Ivanishvili still retains considerable power in Georgia's political system by virtue of his outsized fortune and economic interests. Saakashvili's critics point out that the ex-president will still exercise great influence through his UNM political machine.

Externally, other challenges persist. Despite the new government's cautious outreach to Russia, Moscow continues to violate Georgia's territorial integrity as well as the points of French-brokered ceasefire agreement that ended the 2008 invasion. While Georgia looks set to initial an Association Agreement with the European Union this November in Vilnius (with a potential signing as early as next spring), Russia is applying significant pressure in an effort to scuttle Georgia, Moldova, and Ukraine's Euro-Atlantic aspirations. Pressure from Moscow has already torpedoed Armenia's westward drift.

These not-inconsiderable issues aside, however, Georgia continues to move forward. If last year's elections were a test on the country's potential for a Western, democratic future, this year's should show that it was no fluke. Any gradual shift from what political scientist Ilia Roubanis once referred to as Georgia's "pluralistic feudalism" to politics focused on ideas is a major step forward for democratization. This allows voters to have a realistic say in the sometimes messy sausage-making of modern parliamentary politics. Georgia's government may not be perfectly efficient or well-calibrated to Western sensibilities, but it will be a more representative and durable reflection of Georgian society.

Georgia's famous partisan infighting will continue to be a feature of its political landscape even after Ivanishvili and Saakashvili depart the scene, but it will do so on the steadier ground of an increasingly consolidated democratic apparatus and culture. Of course, Ivanishvili can count on the influence of his personality -- and wealth -- to extend beyond his term as prime minister. Likewise, much of Saakashvili's party-driven economic influence remains intact. Ivanishvili and Saakashvili will remain political forces for awhile yet, but there is no question that era of parade of ruling personalities will take a big hit with their departures. Whatever the outcome, this year's presidential elections in Georgia are certain to matter, not because everything is on the line, but because for the first time in living memory, perhaps nothing is.



The Fire Next Time

Why another debt crisis would be a national security disaster.

The Congress finally found a way to enable the U.S. Treasury to service and repay America's financial obligations -- this time. But it's only a temporary fix; the United States will hit the so-called "debt ceiling" again in just a couple of months. If Washington can't figure out a way to stop lurching from one debt crisis to the next, the result won't be just a catastrophe for the U.S. economy. It will severely damage America's foreign policy and national security interests around the world, as well. American leadership will suffer as our nation's reputation as a reliable and predictable partner diminishes.

Since the founding of our republic, America's leaders have recognized the close links between ensuring the creditworthiness of the federal government and protecting the nation's security. Alexander Hamilton wrote repeatedly of the need for the nation to honor its Revolutionary War debt, so that if there were another war the country would once again be able to borrow to pay for it. After the Civil War, America's leaders placed great emphasis on servicing and repaying the Union's debt to keep faith with creditors and to ensure continued access to world financial markets; that was the reason for the clause in the 14th Amendment that read, "The validity of the public debt of the United States … shall not be questioned."

Keeping faith with America's creditors goes to the very heart of foreign perception of America's reliability -- financially, politically, and militarily. If the country fails to honor its debts, friends, allies, and competitors alike will see this as a reason to question not only America's financial and economic credibility and predictability but also its reliability on numerous foreign and national security policy matters in many parts of the world.

In such circumstances, a multitude of questions are likely to be asked: Is the United States a reliable partner in the Middle East, in East Asia, and in standing up for its interests or international agreements such as those on nuclear proliferation and the use of chemical weapons? Can the United States be counted on to keep its word to support friends and allies in critical parts of the world if they are threatened? Can countries that wish to challenge the United States do so with a greater sense of confidence that the types of confrontations that caused the United States to default -- or even come to the brink of default -- on its solemn financial obligations will lead to an impasse or tentativeness in meeting other obligations as well? Will an inability to put America's financial house in order and establish a long-term policy to place the nation's finances on a sound financial footing -- as opposed to lurching from crisis to crisis -- lead to resource constraints that will limit America's ability to conduct a sustainable and predictable foreign policy and maintain a reliable military posture around the world?

In short, a default will certainly risk catastrophic financial consequence. But it will go well beyond that. A default -- or even a series of crises that bring America to the brink of default -- will also raise serious questions about the predictability of America's foreign policy and reliability as a partner and ally, thereby undermining the country's national security with potentially major long-term consequences.

The very close, historical connection between America's financial policy and outlook -- especially its creditworthiness -- and its national security often receives little attention. Yet this close connection was well understood from the time of our Founding Fathers until quite recently.

During the American Revolution, large sums were borrowed by the Continental Congress from Americans and from foreigners, mainly the French and Dutch. Our first treasury secretary, Alexander Hamilton, wrote that this debt was the "Price of liberty. The faith of America has been repeatedly pledged for it, and with solemnities that give particular force to the obligation." Hamilton went on to write, "Loans in times of public danger, especially from foreign war, are found an indispensable resource, even to the wealthiest" of nations. To be able to secure loans when needed, however, Hamilton recognized that a nation had to be creditworthy -- which meant that it must have faithfully serviced and repaid earlier debt obligations. To emphasize the importance, President George Washington, Hamilton, and other Founding Fathers included a provision in the Constitution stipulating this -- Article 6. It reads: "All Debts contracted and Engagements entered into, before the Adoption of this Constitution, shall be as valid against the United States under this Constitution, as under the Confederation."

Following the Civil War, in which the federal government had also accumulated an enormous amount of debt, voices were heard arguing for repudiation of some of that debt -- or at least considerable delays in repayment. Many suggested that repayment be made not in gold, as originally contracted, but in depreciated greenbacks (recently created paper money). In 1866, the government's interest payments alone were twice the size of the entire budget in the year before the war, so these arguments had significant numbers of supporters.

To dispel all doubts about the government's intention to service and repay its (the Union's) debts, an extraordinary clause was incorporated into the 14th Amendment to the Constitution -- one much discussed of late. It read: "The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned."

Another president who understood the linkage between good national credit and national security was Dwight D. Eisenhower. In a conversation with advisors early in his administration, Eisenhower underscored that "the relationship between military and economic strength is intimate and indivisible." His premise was that the maintenance of sound government finances was basic to a sound economy, which was in turn vital to national security. His concern was that overspending (especially on the military) combined with insufficient revenues could literally "bankrupt" the United States and dramatically weaken its ability to prevail in the Cold War.

While the political leaders at these historic moments lived in different times and circumstances, they all understood and emphasized the links between sound American finances, a strong foreign policy, and the national security of the United States.

Those who see default as an option -- or the threat of a default as a useful lever to extract concessions or produce policy changes they favor -- fail to recognize that it reverses nearly two and a half centuries of American history and undermines the creditworthiness of the country so painstakingly established over that period. And in so doing, it also does serious damage to America's reputation as a reliable financial leader and trustworthy foreign policy and national security partner. During periods when American debt was a much larger portion of GDP than it is today -- such as after major wars -- the country has rallied and political parties have come together to agree on the need to service that debt and, over time, to pay it back, and on policies to do so. Fortunately, such an agreement was just reached, but this kind of last-minute frenzy itself is harmful to foreign perceptions of the United States, and a series of them would be highly damaging.

As President Eisenhower noted, sound long-term national finances are critical to national security and a strong foreign policy. So simply agreeing on a series of temporary measures from time to time to get through a few weeks or months without a default merely prolongs the uncertainty, unless one of these periods is used to produce a long-term solution. If not, lurching from near crisis to near crisis is almost as bad as no solution at all.

With every one of these debt showdowns, we seem to get closer and closer to an actual default. So while a short-term deal is better than default, the continued prospect of this financial sword of Damocles hanging over America and the world -- and the possibility that in the future a deal to avert a default will not be reached, producing a major financial crisis -- conveys very disturbing and harmful messages to the rest of the world:

  • The United States is no longer reliable as the world's financial leader;
  • U.S. government bonds cannot be counted on to be the rock-solid security they have been for generations;
  • The American political system finds it difficult -- or in the worst case, is unable -- to produce a compromise on a matter of fundamental interest to the economic and financial well-being of the country;
  • A relatively small number of people in this country -- representing narrow interests -- can cause severe damage to America's national interest, severely damaging its economy as well as the broader global economy; and,
  • The American political system finds it difficult to agree, or, in the end, cannot agree, on what had been a fundamental principle of American economic and financial policy for so many generations. Then, how can it be expected to agree on other policies -- particularly economic and financial policies, but others as well -- basic to America's national interest in the future?

It would become impossible to avoid a growing belief abroad that U.S. unpredictability and unreliability in the financial sphere will have severe repercussions in other spheres as well. The country increasingly risks being seen as an unreliable and unpredictable partner in many areas of foreign policy and national security policy. Repeated acrimony and gridlock in Washington -- and last-minute near crises over such fundamental issues as maintaining the creditworthiness of the United States -- raise questions abroad about dysfunctions in America's market capitalist system and our democracy that weaken America's soft and hard power.

Competition in the world today is not just for markets. We are also competing for capital. And repeated threats not to honor, or even worse, an ultimate failure to honor, basic financial commitments to our own citizens and creditors around the world will have a chilling effect on the flows of capital into this country -- which in turn will diminish prospects for creating jobs here at home.

Of the nearly $10 trillion in outstanding U.S. government debt not held by agencies such as the Social Security system or the Federal Reserve, more than half is owned by foreigners: $1.2+ trillion by China, $1.1+ by Japan, and between $100 billion and $200 billion by countries such as Switzerland, Belgium, Britain, Luxembourg, and Ireland. All would suffer losses from a default as the value of central bank reserves and private savings deteriorated, too. But it is important to emphasize that this would come not just from the fall in the value of U.S. government debt, but, as mentioned, the sharp drop in various other categories of financial assets. The appetite for additional U.S. financial assets, accordingly, would chill substantially, making the rising deficit more difficult and expensive to finance.

Far from reducing the budget deficit, which those who support the default strategy seem to desire, a default and suspicion abroad about the reliability of U.S. government assets would likely raise interest rates, which, in turn, would increase the deficit. And higher interest payments would also crowd out financial resources for other government programs -- domestic and foreign alike.

Of course, as the above numbers indicate, it's not just Americans who would feel the consequences -- although Americans are likely to be most directly and severely affected. A default would cause U.S. government bonds and the trillions of dollars of other domestic- and foreign-issued bonds benchmarked to U.S. Treasury securities -- and indeed many other kinds of assets, as well -- to depreciate sharply in value. This means the citizens and central banks of many other countries will suffer, too. Harsh criticism of the United States on the streets and in parliaments around the world can be expected, depending on the duration and degree of the default and the ensuing pain. Relations with many countries would suffer as aggrieved citizens blamed their economic pain on the United States, making cooperation between their leaders and Washington more strained. Foreign leaders would be on the defensive when it came to cooperating with the United States on financial matters, even though cooperation would be imperative following a default, given the likelihood of extreme volatility in financial and currency markets around the world. That distrust would likely carry over to foreign policy and security matters, as well.

There would also be serious political debates in some countries about the wisdom of heavy reliance on the dollar as a reserve currency and on the wisdom of investing in American capital markets. Depending on how long the default lasted, the debate over such matters would be more or less serious. A quick reversal of a default would minimize the damage. But there certainly would be recriminations -- and damage to America's reputation for reliability in these and other areas would surely linger.

Beyond that, it is worth noting that the United States is engaged in a kind of systemic competition with other nations. Questions are frequently raised abroad as to which model best can deliver benefits to a country's citizens. When our system appears dysfunctional on such issues as the debt ceiling and closing down the government, it not only damages America's international reputation, but it also raises questions relating to whether political divisions will prevent the United States from addressing a wide range of other major policy issues for a sustained period of time.

The foreign policy consequences of internal divisions and lurching from near-crisis to near-crisis loom larger. Many countries rely heavily on the United States for leadership, for its sustained military presence in key parts of the world, and for resoluteness in defending not only its national interest but also international treaties and norms. Questions will be raised as to whether failure to resolve fundamental financial issues at home, and the unpredictability of fiscal events in Washington, will spill over into other areas.

For example, while the United States attaches growing importance to its ties with Asia and its sustained economic, political, and military presence there, internal impasses and divisions are bound to raise questions in that region over whether it will it have the resources or the political will over the long term to sustain a broad presence. There are many similar examples around the world -- especially in the Middle East -- where American reliability is critical to key friends and allies.

While it would be nice to be able to reassure countries that divisions and impasses on financial issues will have no impact on America's foreign policy or military role in the world, other countries might not see it the same way. Those who feel they cannot rely on the United States may conclude that they have to make deals with other countries to protect their interests. And challengers for influence in various parts of the world will likely feel emboldened if they perceive a divided America to be less capable financially or politically of rising to such challenges. Markets and observers throughout the world are relieved that a default will not occur this time, but they know that this is but a temporary deal. Lurching from impasse to impasse and crisis to crisis is hardly a way for the world's greatest power to conduct itself and certainly undermines confidence it its world leadership.

And there is always the risk that next time a miscalculation or a last-minute glitch could prevent a compromise. For whatever reason this occurs, failure to avert a default would produce a financial disaster for the United States and the world. While the myriad financial implications of a default are difficult to predict with precision, they are bound to be extremely serious and deeply harmful to American interests. The same can be said of the consequences for America's foreign and national security interests. All told, the negative impact on this country of repeatedly bringing the United States and the world to the brink of crisis will grow more and more serious. And the harm done by an actual default will be enormous and lasting. We may have avoided a catastrophe this time. The next time, we may not be so lucky.

So the next few months requires a major national effort to produce a consensus on fiscal policy -- and to take the threat of default off the table -- to avoid this risk recurring. This is needed to give the world and our own citizens confidence that this country is on a sustainable financial footing for the future. That will make America a more credible financial leader and considerably boost confidence in the predictability and sustainability of America's foreign and national security policy as well.