San José State University
Department of Economics
Thayer Watkins
Silicon Valley
& Tornado Alley

The Economy and Economic History
of the Republic of Georgia (Sakartvelo)

Ancient History

Georgia has a special climate. The Caucasian mountains protect the area from cold, northern winds so, under the moderating influence of the Black Sea, the region of Georgia has an almost subtropical climate. There has consequently been a distinctive civilization at the eastern end of the Black Sea from very ancient times. The story of Jason and the Argonauts is about a Greek expedition to Georgia to capture the golden fleece, a sheepskin used in the capturing of alluvial gold.

Georgia was within the cultural spheres of influence of both Greece and Persia. After the decline of Greece, the Roman Empire conquered the Caucasus and made Georgia into a client state and it remained such for four centuries. After the division of the Roman Empire into the western and eastern portions Georgia came under the influence of Byzantium. The Byzantine political influence ended when the spread of Islam brought Arab conquest in 645.

The name Georgia arises from the Persian name for the region, Gurj. The Arabs adopted a variation on the Persian name for the country, Kurj. The Russian name Gruzuiia and the English name obviously derive from the Persian name. The Georgians themselves call their country Sakartvelo.

Georgia During the Middle Ages

Although the Arabs conquered Georgia they allowed local figures to rule the country so Georgian cultural identity was maintained. It was one family, the Bagrationi, who for a millenium was the source of the local Georgian leaders that in some fashion over the years maintained Georgian cultural identity.

The Arabs maintained control for several centuries but later the Turks replaced the Arabs as the dominant force. Turkish suzerainty continued until the twelfth century and the reign of David IV who freed Georgia of the Turkish overlordship. This was the era of the Golden Age of Georgian culture.

The independence of Georgia did not last long. In the thirteenth century the rise of Genghis Khan brought strife and conflict to the region of the Caucasus. In the fourteenth century Turkish domination returned with conquest of Tblisi by Tamerlane. When the Ottoman Turks conquered Constantinople Georgia was partitioned into Ottoman and Persian spheres of influence. In the Persian sphere a Georgian dynasty ruled under Persian domination. Eventually this local dynasty was able to re-establish Georgian independence, but the Ottomans threatened to annex this independent Georgian kingdom. The Georgian ruler, Hereckle, in the late eighteenth century sought and received Russian assistance. Soon this Russian assistance matured into political control and Georgia was made part of the Russian Empire. This Russian domination became more difficult to overthrow than the Turkish one.

The Era of Russian Domination

Czarist Russia, recognizing the role the Bagrationi dynasty had played in maintaining Georgia cultural identity, banished those rulers and suppressed the Georgian aristocracy. In the place of Georgian cultural and political institutions the Czars substituted Russian institutions. This evoked political protest and led to the formation of a revolutionary independence movement that got mixed with the movement for socialism. The antimarket elements of this independence movement was fueled by the domination of the urban economy by Armenian merchants. The Social Democrat Party of Russia played a key role in organizing the independence movement in Georgia.

The Social Democrat Party was itself experiencing internal disputes. The dispute centered around Vladimir Lenin. Lenin called for radical actions, including terrorism and bank robberies, for furthering the revolution. Others in the party disagreed with Lenin. Lenin split the party taking a minority of its members with him but he called his faction, the Bolsheviks, the majority-ists. The other majority faction then became known as the Menshiviks, the minority-ists. The Georgian, Josef Djugashvili, joined Lenin's faction. Although Djugashvili is usually characterized as Georgian it is notable that his mother belonged to an ethnic minority in Georgia called Ossetian, the descendants of the Alans.

The protest reached a climax in 1905 with a peasant revolt in the rural areas and a general strike in the cities. These protests in Georgia paralleled uprisings throughout the Russian Empire and the Czarist government conceded reforms. One reform was to allow popular representation in a legislature, called the Duma. Georgians were allowed to elect representatives to the Duma. The Georgians elected were Mensheviks. Their leader was Noe Zhordania.

About 1910 the Bolshevik Josef Djugashvili changed his last name to the Russian word for steel, Stalin.

Brief Independence and a Return of Russian Domination

With the overthrow of the Czar the Georgian Mensheviks under Noe Zhordania declared Georgia independent in 1918 and sought the protection of Germany against any Turkish threats to its independence. The major powers recognized the independence of Georgia and within two years the Bolshevik government under Vladimir Lenin also recognized Georgian sovereignty. Georgian independence was not economically successful because the independents had not established trade relations to replace those that existed under the Czarist regime. Joseph Stalin had by 1922 achieved a high degree of power in the Soviet Union. He sent the Red Army into Georgia to assert Soviet control. Lenin was not pleased with the way Stalin handled the Georgian situation with simple, brute power. Lenin said of Stalin, "This cook can only cook s spicy dishes."

Under Stalin's orders Georgia, Armenia and Azerbaijan in 1922 were combined into the Transcaucasian Soviet Federated Socialist Republic. This political arrangement continued until 1936 when this artificial creation was split into its constituent parts, each of which became a Soviet socialist republic within the Soviet Union.

In 1924 five thousand Georgians were executed for their roles in the Menshevik independence movement of Georgia which followed the Russian Revolution of 1917. The executions were on Stalin's orders but were carried out under the direction of Lavrenti Beria, the Georgian who had become the head of the Checka (secret police) in the Transcaucasian Republic. Beria is a prime example of the Dracula-like monsters Communist Parties allow into power. In 1932 Beria became the head of the Communist Party in the Trancaucasian Republic and he personally supervised the Party purges there that Stalin called for throughout the Soviet Union in 1936-37.

After the dismemberment of the Transcaucasian Republic in 1936 Georgia was integrated into the forced industrialization of the central planning system. Industrial output increased significantly.

In the 1950's Nikita Khrushchev denounced Stalin to the dismay of Georgian communists. The protests reached such a level that in 1956 hundreds were killed. Georgians did not find the truth about Stalin's crimes against Georgians until the 1980's.

The Career of Eduard Shevardnadze

Eduard Shevardnadze began his career within the Communist Party in the Komsomol (Communist Youth League). His performance was so exemplary that he was made the head (first secretary) of the Communist Party in his district in 1961. By 1964 he was given the job of chief administrator for the Georgian Police. Georgia has a reputation for corrupt government. Some of this may have been corruption in the Western sense, but much of it would have simply involved finding away around official policies prohibited entrepreneurship. This would not be corruption as counteracting bad policies. In case however the police department would been a focus for corruption. Eduard Shevardnadze's task in administering the police would not have been an easy one. He executed his assignment during his term of office from 1964 to 1972 efficiently and combated corruption.

In 1972 Eduard Shevardnadze was made first secretary of the Communist Party in Georgia. He was effectively the head of government in Georgia. In the Soviet system there were two hierarchies, the official government and the Communist Party apparatus. The official government was ususally merely a figurehead. During his term of power Shevardnadze suppressed corruption and carried out some experiments in reform. He also had to deal with insurrections in South Ossetia and Abkhazia. Furthermore a strong nationalist movement a growing. His term as First Secretary ended in 1985 when he was appointed Minister of Foreign Affairs for the Soviet Union in 1985.

The person who replaced Shevardnadze as first secretary of the Communist Party of Georgia was a far less able individual, Jumber Patiashvili.

The Decline in Domination from Moscow

Patiashvili was a talent-less autocratic Communist Party boss. He proposed some flawed state projects which evoked local concern over their environmental impact and sought to suppress any and all opposition to his dictates. In April of 1989 Soviet troops fired on protestors in Tbilisi killing twenty demonstrators, mostly women and children. The Georgian public was outraged at this action and it was labeled the April Tragedy. It did not help matters that Patiashvili's government tried to blame the demonstrators. When the situation developed into a mass movement of Georgian nationalism, Mikhail Gorbachev sent Eduard Shevardnadze to Georgia to bring things under control. Shevardnadze fired Patiashvili and put the head of the KGB in Georgia in charge of the government.

But the nationalistic fervor had grown too strong to be contained. However the fervor was manifested in a diverse collection of groups and personalities with diverse program agendas for the Georgian future. In October the Communist Party government allowed a multiparty election. The party coalition called the Round Table/ Free Georgia coalition, led by Zviad Gamsakhurdia, won a majority of the seats for the Supreme Soviet of Georgia. Zviad Gamsakhurdia was the son of a popular Georgian author and a well known Georgian nationalist.

Some political groups refused to recognize the official election scheduled for October and held their own election in September. The participants in this election formed an organized opposition to the government elected in October.

The political factions in Georgia organized and armed their own militias. Once Gamsakhurdia had won election he tried to force the disarmament and disbandment of these militias, but without success. This problem of militias became even more serious when they raided police and Soviet army armories to arm themselves with formidable military weapons.

The Regime of Zviad Gamsakhurdia

Gamsakhurdia asserted Georgian independence of Moscow at every opportunity. He refused to allow Georgian representation in Soviet affairs. Messages from Moscow received acrimonious replies from Gamsakhurdia. He took control of the Georgian brances of the KGB and the Soviet Ministry of Internal Affairs. In March of 1991 Gamsakhurdia organized a referendum on Georgian independence which which Georgian voters approved 99 percent. In April of 1991, on the second anniversity of the April Tragedy the Georgian Supreme Soviet, the legislative body of Georgia, declared Georgia independent of the Soviet Union. In the presidential election of May 1991 Gamsakhurdia received 86 percent of the vote.

While Gamsakhurdia had an impressive mandate to rule Georgia, his penchant for autocratic rule exceeded even that mandate. Gamsakhurdia decided that the August 1991 attempted coup d'etat in Moscow was going to succeed and so he did not allow Georgians to ally themselves with Boris Yeltsin's opposition to the coup.

Gamsakhurdia tried once again to disarm the militias of his political opponents, but with even less success than before. Gamsakhurdia used government troops to break up a rally of opposition groups in Tbilisi in September and had an opposition leader arrested and imprisoned. At the end of December of 1991 Gamsakhurdia again tried to use govenment troops to suppress a political rally and the move backfired. The opposition moved from demonstration to military confrontation. The militias of his opponents attacked the Georgian parliament building where Gamsakhurdia and his supporters were located. In January of 1992 Gamsakhurdia and some of his supporters fled from the capital to Chechnia.

After the departure of Gamsakhurdia the opposition leaders formed a Military Council to function as the government of Georgia. This was soon replaced by a Political Consultative Council and a State Council. Eduard Shevardnadze was invited to join this interim government as a member of a four-person State Council Presidium.

Eduard Shevardnadze dominated the politics of Georgia until November of 2003. In the parlimentary elections of that time there was widespread accusations of election fraud and Shevardnadze was forced to resign in the face of massive public protests known as the Rose Revolution.

The Political and Ethnic Fragmentation of Georgia

The Georgian polity had shattered with the events of January 1992 and it is appropriate at this point to review the various compositions of Georgia. Georgia had a population of about 5.5 million at the time. The composition in terms of ethnic identification in 1993 was

Ethnic IdentificationProportion

Ethnic identification may not match with culture because some ethnic minorities may be Georgian in terms of language and culture. In 1993 the composition of the population, in terms of primary language, was:

First LangugeProportion

The religious affiliations of the residents of Georgia in 1993 were

Religious AffiliationProportion
Georgian Orthodox65%
Russian Orthodox10%
Armenian Apostolic8%
Others or none6%

The spatial distribution of the population of Georgia is given below.

 Districts Area Population Population Density
& Aut. Republics sq km 1993 Share per sq km
Guria 2033 160800 3.0 79.1
Imereti 6349 788900 14.6 124.3
Kakheti 12217 464000 8.6 38.0
Kvemo Kartli 6772 601500 11.1 88.8
Racha-Lechkumi 3224 45400 0.8 14.1
Samegrelo 4395 418100 7.7 95.1
Samtskhe-Javakheti 5224 198800 3.7 38.1
Shida Kartli* 7882 485900 9.0 61.6
Svaneti 4389 23200 0.4 5.3
Tianeti 4063 43800 0.8 10.8
Tbilisi 1384 1271800 23.5 918.9
Abkhazia 8660 516600 9.6 59.7
Ajaria 2900 386700 7.2 133.3
Total 69493 5405400 100.0 77.8
*northern half of Shida Kartli corresponds roughly to South Ossetia


Abkharzia is the northwest region of Georgia. Officially it is the Abkharzian Autonomous Republic of Georgia. The Abkharzians are a distinct population group who have maintained thei ethnic identity. However the Abkharzians are a minority even in Abkharzia. The composition of the population of the Abkharzian Autonomous Republic of Georgia is as follows:

The Ethnic Composition of the
Abkharzian Autonomous Republic
of Georgia
Ethnic IdentificationProportion

Under Soviet control Abkharzia and the Abkharzians had special status and privileges. From 1921 to 1930 Abkharzia was an autonomous republic of Russia separate from Georgia. Even after Abkharzia was made part of Georgia the Abkharzians enjoyed certain privileges. About two thirds of the government jobs in Abkharzia went to Abkharzians even though they constituted only about one sixth of the population. Georgian living in Abkharzia resented these special privileges for the Abkharzians. The key to understanding the political events concerning Abkharzia is the relative high proportion of ethnic Russian population in in Abkharzia. The Abkharzians looked to Russia to protect their autonomy and the Russians in Abkharzia support the Abkharzians as the best means of protecting their interests within Georgia.


In the 1500's Ottomans occupied the southwestern section of Georgia and converted the Geogrians there to Islam. In 1878 the Treaty of Berlin excised this region from the Ottoman Empire and made it again part of Georgia. In 1921 the Ajarian region was made an autonomous republic within Georgia. However the Ajarians are not culturally different from Georgians in terms of language and culture.

The Ethnic Composition of the
Ajarian Autonomous Republic
of Georgia, 1979
Ethnic IdentificationProportion
including Ajarian

South Ossetia

The Ossetians are the descendants of a remnant of the Alans, a principal tribe of the Sarmatians, which found refuge in the Caucasus Mountains. They were originally located north of the ridge of mountains forming the northern border of Georgia. In the thirteenth century Genghis Khan's Mongol army invaded Ossetia. The Ossetians fleeing the Mongols crossed the mountains into Georgia and populated the region now known as South Ossetia. In 1922 when Stalin created the Transcaucasian Republic, South Ossetia was declared an autonomous region. It maintained this status until 1990 when Georgia rescinded this identification. Two years later the Georgian government found it best to re-enstate that autonomous regional status.

The ethnic composition of South Ossetia in the 1980's is shown below.

The Ethnic Composition of the
South Ossetian Autonomous Region
of Georgia, 1980-90
Ethnic IdentificationProportion

The Georgian Economy

Economic Statistics for the Republic of Georgia

According to the data published by the International Monetary Fund (IMF) the economy of Georgia has growing in the recent past at a steady rate 8.25 percent over the five-year period from 2001 t0 2006. The more recent figures are not yet available.

The unemployment rate was at double digit levels over the period 2001 to 2005, rising from 11.1 percent in 2001 to 13.8 percent in 2005.

Again, the value for 2005 is the latest availabe through the IMF.

The rate of inflation abruptly rose in 2005 from 4 to 6 percent per year range to an 8 to 9 percent per year as shown in the graph below.

(To be continued.)

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